25th Feb 2010 07:00
25 February 2010
GKN plc Results Announcement for the year ended 31 December 2009
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Management performance - See note (1) below |
As reported |
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2009 |
2008 |
Change |
2009 |
2008 |
Change |
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|
£m |
£m |
% |
£m |
£m |
£m |
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|
|
|
|
|
|
|
|
|
|
|
Management sales |
4,468 |
4,617 |
(3) |
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|
|
|
|
Less share of joint ventures |
(245) |
(241) |
2 |
|
|
|
|
|
Sales - subsidiaries |
4,223 |
4,376 |
(3) |
4,223 |
4,376 |
(153) |
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|
Management trading profit |
152 |
221 |
(31) |
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|
|
|
|
Less share of joint ventures |
(23) |
(20) |
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|
|
|
|
|
Trading profit - subsidiaries |
129 |
201 |
(36) |
129 |
201 |
(72) |
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|
Operating profit/(loss) |
129 |
201 |
|
39 |
(86) |
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|
|
Share of joint ventures (post-tax) |
18 |
16 |
|
21 |
6 |
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|
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Net financing costs |
(64) |
(47) |
|
(114) |
(50) |
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|
|
Profit/(loss) before tax |
83 |
170 |
(51) |
(54) |
(130) |
(76) |
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Profit/(loss) after tax - continuing |
72 |
169 |
|
(39) |
(120) |
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Earnings per share - p (restated) - continuing |
5.5p |
16.0p |
|
(3.2)p |
(11.7)p |
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Overview(1)
·; Group results reflect the decline in Automotive, Powder Metallurgy and OffHighway sales, a strong performance in Aerospace and the benefits from restructuring
o Sales down 3%, underlying sales down 22% (£1,134 million).
o Trading profit of £152 million, down £69 million. Trading margin recovered to 6.5% in the fourth quarter.
o Automotive (including Powder Metallurgy) reported £7 million trading profit, despite underlying sales down 25%.
o Sales up 48% in Aerospace with trading profit up 61% to £169 million
§ Strong first year contribution from Filton.
§ Underlying sales up 2%.
o OffHighway underlying sales down 43%, £12 million trading loss.
o Restructuring programme continued with around 3,500 people leaving the Group in 2009.
·; New business wins
o Electric rear axle for PSA HYbrid 4 and strong interest for hybrid/electronic drive products.
o Composite and titanium structures business on Airbus A350 and Joint Strike fighter.
·; Positive free cash flow of £136 million (2008: £38 million outflow).
·; Net debt of £300 million at 31 December 2009, benefits from rights issue net proceeds of £403 million and strong operating cash flow.
·; No final dividend to be paid in respect of 2009, but the Group intends to pay an interim dividend in 2010.
Sir Kevin Smith, Chief Executive of GKN plc, commented:
"GKN has made significant progress in realigning its operations to weaker markets and preserving cash. In response to the global recession we restructured the Group to reduce the break-even points in Automotive, Powder Metallurgy and OffHighway by around 20% and re-positioned our Aerospace business for lower aircraft production volumes in 2009. As the year progressed, automotive production improved and the benefits of the Group's restructuring plan increased. As a result, all divisions were profitable in the fourth quarter, with the exception of OffHighway, and the Group reported a trading margin of 6.5%.
Our focus on cash enabled us to end the year with net debt of £300 million, well below our target. Capital investment has been maintained at 0.7 times depreciation and inventory levels reduced by £130 million. With strong operating cash flow and the successfully concluded £403 million rights issue in July, we were able to repay our revolving credit facilities and buy back £124 million of our outstanding bonds. This significantly strengthens our capital base and reduces our interest cost going forward.
Our financial strength and strong market positions mean that we are well positioned to take full advantage as markets continue to recover. We expect to recommence dividend payments with the 2010 interim."
Restructuring
The original restructuring plan included reducing global headcount by around 5,260 people by July 2010, with 13 manufacturing sites to be closed. It was anticipated that the cash charges in 2009/10 would be approximately £125 million to £130 million, with a similar reduction in annualised operating costs once the restructuring is complete. In addition, short-time working costs were estimated to be £24 million.
As markets weakened during the year, restructuring activities were extended, such that around 3,500 employees left the Group in 2009 and 13 facilities were affected by closure actions. Restructuring costs in the year amounted to £141 million, including (net) impairment charges (£9 million), short-time working (£24 million) and redundancy and reorganisation charges (£108 million). The benefits of the actions to address the permanent cost base, estimated at £80 million in 2009, contributed to the margin recovery in the fourth quarter as volumes recovered. Cash spend on this restructuring programme amounted to £93 million. Final site rationalisation actions and short-time working charges are expected to amount to around £37 million with cash spend estimated at £67 million in 2010 and £25 million in 2011. Incremental 2010 benefits are estimated at £60 million.
Outlook
GKN's Markets
The outlook for our major markets is mainly positive although some uncertainty remains, particularly around second half demand.
In automotive, forecasters expect a good improvement in global production. The impact of the conclusion of a number of government incentive schemes, particularly in Western Europe, is expected to be more than offset by good growth in North America, India, Japan and Eastern Europe. Automotive vehicle inventories remain in balance, supporting a much closer correlation between sales and production. Production mix is also expected to return to more normal trends, with underlying demand for medium and larger vehicles increasing and small car demand softening in some markets as vehicle incentive schemes are concluded.
In aerospace, the US defence market is expected to remain solid, although the F-22 will start its production rundown this year. Civil aircraft customers are forecasting to maintain their published production schedules although, with airline profitability remaining weak, there remains some risk of further schedule cuts in the second half. Recent successful first flights on the Airbus A400M, Boeing 787 and Boeing 747-8 are, however, encouraging.
Off-highway markets are showing some signs of improvement, particularly for heavy construction and mining equipment. Expectations are for a steady, although modest, recovery in demand through the year.
GKN's Performance
Against this background we expect GKN's Automotive and Powder Metallurgy businesses to make strong progress in 2010, with the improvement in end market demand, healthy order books and improving mix underpinning sales growth. Further incremental benefits from restructuring are expected to support steadily improving trading margins from 2009 second half levels.
Aerospace sales are expected to be broadly flat, assuming there are no further reductions in production schedules in the second half. Although Airbus will receive price downs from Filton in 2010, we expect double digit trading margins to be maintained in Aerospace.
In OffHighway, we expect some increase in sales and a good improvement in trading profits as the modest recovery in demand is converted to trading profit from a much reduced fixed cost base.
Group restructuring actions will complete this year, as described above.
The Group intends to pay an interim and final dividend on 2010 earnings. The level recommended by the Board will be commensurate with achieved earnings and take into account the outlook for our end markets at that time. In the medium term, it is the intention to resume a progressive dividend policy based on an underlying earnings cover ratio of around 2.5 times.
Against a background of expected improvements in global economies, we expect the Group to make significant progress in 2010. Our balance sheet strength and excellent market positions give the Board confidence in a strong and sustained GKN recovery.
Notes
(1) Financial information, Group and Divisional, set out in this announcement, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit, as applicable, of subsidiaries and the Group's proportionate share of joint ventures. References to trading margin are to trading profit expressed as a percentage of sales. Management profit or loss before tax is Group profit or loss before tax adjusted to exclude restructuring and impairment charges, profits and losses on sale or closures of businesses, amortisation of non-operating intangible assets arising on business combinations, change in value of derivative and other financial instruments and other net financing charges. These figures better reflect performance of continuing businesses. Where appropriate, reference is made to underlying results which exclude the impact of acquisitions as well as currency translation on the results of overseas operations.
Cautionary Statement
This announcement contains forward looking statements which are made in good faith based on the information available to the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated.
Further Enquiries
Guy Stainer
Director, Investor Relations and External Communications
GKN plc
T: +44 (0)207 463 2382
M: +44 (0)7739 778 187
Andrew Lorenz
Financial Dynamics
T: +44 (0)20 7269 7113
M: +44 (0)7775 641 807
There will be an analyst and investor meeting today at 0930 at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.
A live audiocast of the presentation will be available at www.gkn.com. Slides will be put onto the GKN website approximately 15 minutes before the presentation is due to begin. Questions will only be taken at the event.
A live dial in facility will be available by telephoning one of the following numbers:
Standard International Dial In: +44 (0) 1452 555 566
Conf ID: 55742249
A replay of the conference call will be available for 14 days at the following numbers:
Standard International Number: +44 (0) 1452 55 00 00
Replay Access Number: 55742249#
The full text of this announcement together with the attached financial statements and notes thereto may be downloaded from www.gkn.com.
NEWS RELEASE
GKN plc Results Announcement for the year ended 31 December 2009
Group Overview
GKN plc, the global engineering business that serves the automotive, aerospace and off-highway markets, today issues its results for the year ended 31 December 2009.
These results reflect the significant deterioration in automotive and off-highway markets compared to the prior year, continued strong performance in Aerospace, and include the impact of major restructuring to align the Group's operations with its markets. They also contain a strong contribution from the Aerospace acquisition of the Airbus wing component and sub-assembly operation in Filton, UK, completed on 5 January 2009. The extent of currency movements had a significant effect on the Group's reported financial performance in 2009.
Management salesdecreased 3% in the year ended 31 December 2009 to £4,468 million (2008: £4,617 million) including the benefit from currency translation and acquisitions which added £655 million and £330 million, respectively. Underlying sales decreased by £1,134 million (22%).
Management trading profit reduced 31% to £152 million (2008: £221 million), with a strong performance in Aerospace and a small trading profit in Driveline outweighing trading losses in Other Automotive, Powder Metallurgy and OffHighway. The currency translational benefit was £37 million, while 2009 acquisitions contributed £40 million. Excluding these items, the underlying decrease was £146 million (57%).
After an extraordinarily difficult start to the year with Automotive sales down around 40% in the first quarter, the Group has made steady progress through 2009 as the table below demonstrates.
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Quarter 1 |
Quarter 2 |
Quarter 3 |
Quarter 4 |
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Sales (£m) |
1,079 |
1,095 |
1,103 |
1,191 |
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Trading profit/(loss) (£m) |
(13) |
36 |
51 |
78 |
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Trading margin (%) |
(1.2) |
3.3 |
4.6 |
6.5 |
In the first quarter, the Group reported a trading loss of £13 million particularly related to the sharp decline in the automotive market. In the second quarter, production schedules stabilised, the benefits of the Group's restructuring plan increased and the ongoing strong performance of the Aerospace business all contributed to bring the Group back into profitability. The third quarter trading profit improved further as automotive production schedules increased in response to higher automotive sales and restocking by vehicle manufacturers. With the exception of OffHighway, all divisions were profitable in the fourth quarter. Overall Group trading margin for 2009 fell to 3.4% (2008: 4.8%), although by the fourth quarter this had risen to 6.5%.
Restructuring
During the year, around 3,500 employees left the Group and 11 facilities ceased operations, with a further 3 closures announced. Restructuring costs in the year amounted to £141 million, including net impairment charges (£9 million), short-time working (£24 million) and £108 million redundancy and reorganisation charges. The benefit of the actions to address the permanent cost base was estimated to be £80 million in 2009. Cash spend on the 2008 restructuring programme amounted to £93 million. Final site rationalisation actions, including a further plant closure to be announced before the end of the first quarter, headcount reductions and the reduction of short-time working in the first half of 2010 will result in 2010 restructuring charges of around £37 million with 2010 cash spend estimated at £67 million. 2010 incremental benefits of £60 million are expected to accrue.
The benefit to annualised operating costs resulting from the total restructuring programme is expected to be £161 million.
Divisional Performance(1)
Automotive
Automotive activities comprise GKN Driveline and Other Automotive companies which supply driveshafts, torque management devices, structural and engine components and substrates for catalytic converters, largely to vehicle manufacturers in the global car and light vehicle markets.
Production of cars and light vehicles fell sharply at the beginning of 2009 as manufacturers responded to the sharp decline in sales of new vehicles and high levels of inventory. In addition to overall lower production, there was a change in mix to smaller cars as a result of scrappage and tax incentive schemes in many countries. In the second half of 2009, production increased as markets began to recover and incentive schemes boosted demand. For the year as a whole, the markets showing the strongest production growth were China and India with production in Brazil also increasing slightly. North America, Japan and Europe were particularly affected by the economic turmoil with significantly lower production volumes.
Overall, annual global production volumes fell 13% in 2009 to 59 million vehicles (2008: 67 million). Excluding China, annual production volumes fell 22% to 46 million vehicles (2008: 59 million).
EuropeProduction in Western Europe was 12.0 million vehicles in 2009 compared with 14.6 million in 2008, a decrease of approximately 18%. Falls in production were seen across the major Western European markets of Germany (12%), France (19%), Italy (16%), Spain (13%) and the UK (33%).
In Eastern Europe production in 2009 fell by approximately 27%, to 4.8 million vehicles.
Overall production in Europe (where sales to vehicle manufacturers accounted for approximately 19% of Group sales in the year (2008: 24%)) was 16.8 million vehicles, approximately 20% lower than in 2008.
AmericasIn North America (where sales to vehicle manufacturers accounted for approximately 6% of Group sales in the year (2008: 8%)) production in 2009 was 8.5 million vehicles, a reduction of 32% from the 12.6 million in 2008. Within the overall figure there was again a significant change in market share with Chrysler and General Motors continuing to lose volume to foreign manufacturers and Ford. Consumer preference continued to move from light trucks and sports utility vehicles (SUVs) to crossover and passenger vehicles.
In Brazil, production increased by 3% to 3.0 million vehicles, assisted by government incentive programmes which increased domestic demand. Sales in Brazil accounted for 4% (2008: 3%) of Group revenues in the year.
Asia PacificProduction in Japan fell by 31% to 7.7 million vehicles in 2009, as both local demand and export markets were negatively affected by falling sales and destocking.
Asia Pacific production (excluding Japan) grew by 18%. In China, production of 12.5 million vehicles was 46% above 2008 and made it the world's largest vehicle market. Production in India rose by 13% to 2.3 million vehicles.
Overall, production in Asia Pacific reduced slightly to 28.4 million vehicles in 2009 (2008: 28.7 million). Sales in this region accounted for 6% (2008: 5%) of Group revenues in the year.
GKN Driveline
GKN Driveline is the world's leading supplier of automotive driveline components and systems. As a global tier one supplier serving the world's major vehicle manufacturers, GKN Driveline develops, builds and supplies an extensive range of automotive driveline components - for use in the smallest ultra low-cost car through to the most sophisticated premium vehicle, demanding the most complex driving dynamics. GKN Driveline is a leading global producer of constant velocity jointed (CVJ) sideshafts, propshafts, and mechanically and electronically controlled torque management products.
GKN Driveline's underlying sales fell 43% in the first quarter before seeing gradual improvements for the rest of the year. Overall, sales fell 12% in 2009 to £1,992 million (2008: £2,268 million). Excluding the favourable impact of currency translation of £352 million, underlying sales reduced by £628 million (24%).
GKN Driveline trading profit was £16 million (including a first quarter £3 million post-employment benefit curtailment gain) compared with a trading profit of £88 million in 2008 (including an £8 million post-employment benefit curtailment gain and £3 million charge in respect of abortive acquisition costs). The impact of translational currency was £16 million positive, with underlying trading profit reduced by £88 million due to significantly lower volumes. In the first half, GKN Driveline reported a trading loss of £32 million. Sales in the second half were 20% higher than in the first half as customer demand partially recovered. In addition, the benefits of the restructuring programme came through and in the second half Driveline produced a trading profit of £48 million.
As part of the Driveline restructuring programme, one factory in the UK was closed and two others will be merged during 2010. The joint venture in South Africa was ended and GKN sold its joint venture interest in Jilin, China, to allow it to concentrate efforts in that country on Shanghai GKN Drive Shaft. A plant closure was announced in Japan which will conclude around the end of 2010. In total, around 1,200 people left the business in 2009 and extensive use of government supported short-time working was used to match production with sales. By the year end, as volumes recovered, the levels of short-time working had reduced considerably.
Charges recognised in 2009 in relation to this restructuring amounted to £81 million of which redundancy and reorganisation costs were £63 million, short-time working was £19 million and net impairment reversals were £1 million.
GKN Driveline took further steps to build on its 21-year presence in the Chinese market to extend critical relationships and also its footprint for the future. The joint venture with our partner SAIC, Shanghai GKN Drive Shaft, was extended for a further 50 years. Sideshaft production started at a new state of the art facility at Wuhan and plans are well advanced for an additional facility in Chang Chun, northern China. Although production in China was depressed at the start of the year, it reached record levels of output by year end.
Management initiated actions in 2009 to protect the cash flow of the business by reducing working capital and capital expenditure. As a result, inventories were reduced by 21% at constant currency rates and capital expenditure on tangible fixed assets reduced to £74 million (2008: £110 million). The business increased its net productive inventory turns to 12 times by the year end (2008: 8 times) and the ratio of capital expenditure to depreciation reduced to 0.7 times (2008: 1.2 times). Return on invested capital was 1.4% (2008: 7.9%).
GKN Driveline invested £57 million in the year (2008: £63 million) on research and development focused on new applications of existing products and a range of new driveline products, including for hybrid and electric vehicles.
Although new model launch activity was low during the period GKN Driveline was successful in winning 95% and 85% respectively, of replacement and new driveshaft programmes for which it was invited to bid.
During 2009, GKN Driveline launched a number of innovative products designed to help vehicle manufacturers to improve vehicle handling performance and reduce fuel consumption and emissions.
Face Spline: a patented hub connection for CVJ sideshafts which offers vehicle manufacturers a cost-saving and more efficient alternative to the traditional stem design commonly used to secure CVJ sideshafts to wheel-hubs.
Electric axles: provide innovative all-wheel-drive and fuel-efficient, emission-free features for tomorrow's generation of hybrid and electric vehicles.
Direct Torque Flow technology: a new design solution to connect the propshaft to the vehicle's transmission in a way that saves weight, assembly time, space and cost.
Electronic Limited Slip Differential (eLSD): a rear axle differential with an integrated active coupling that provides vehicle traction and stability through high speed optimal torque allocation to the powered wheels.
Low-cost vehicle sideshafts: specifically engineered solutions suited to the growth of affordable mobility in developing nations.
In the Industrial and Distribution Services business, which provides a range of new and remanufactured components to the passenger vehicle aftermarket and repairs and replaces heavy duty propshafts, underlying sales fell 8% although the business remained profitable.
New business was also won in the military vehicle market. GKN became sole supplier of high articulation driveshafts on the Oshkosh Tak4 (TM) suspension system, which provides greater off-road capability in personnel transport vehicles. Collaboration on this programme between GKN Industrial & Distribution Services and GKN OffHighway resulted in a tenfold increase in production capability. The programme continues in 2010 with further business secured.
Other Automotive
GKN's Other Automotive companies supply structural and engine components and substrates for catalytic converters, mainly to light vehicle and truck manufacturers.
Sales in the year of £117 million were £59 million lower than the prior year (2008: £176 million), reflecting the significant deterioration in automotive markets. The impact of currency translation was positive at £12 million. A trading loss of £2 million for the year compares with a trading profit of £2 million in 2008. Restructuring actions in the year resulted in 180 people leaving the UK business.
Automotive trading margin
The trading margin for GKN Automotive in 2009 was 0.7% (2008: 3.7%). As volumes recovered and the benefits of the restructuring plan increased, the trading margin recovered in the fourth quarter to 5.9%. Return on invested capital was (2.5)% (2008: 2.5%).
Powder Metallurgy
Powder Metallurgy produces metal powder (Hoeganaes) and sintered products (GKN Sinter Metals). Hoeganaes is the largest producer of metal powder in North America. GKN Sinter Metals is the world's largest manufacturer of sintered components. It uses powdered metals to manufacture precision automotive components for engines, transmissions and body and chassis applications. It also produces a range of components for industrial and consumer applications, including power tools, bearings, white goods and garden equipment.
Powder Metallurgy experienced a significant reduction in business activity in 2009, with sales of £512 million (2008: £618 million). Excluding the favourable impact of currency on translation of £87 million, the underlying decrease in sales was £193 million (27%). Sales fell acutely in Europe and North America, whilst in the Asia Pacific and South American operations headline sales improved by 5% compared with 2008, buoyed by strong second half performances in India, China and Brazil.
The most severe market conditions for Sinter Metals were experienced in the first half of 2009 when lower automotive production levels were further depressed by extensive de-stocking throughout the supply chain. North American volumes in particular were adversely affected in the second quarter by the accelerated actions of General Motors and Chrysler to reduce inventories as part of their reorganisation plans.
A gradual improvement in sales levels was seen during the second half of 2009 as automotive market conditions improved and de-stocking slowed.
Hoeganaes' underlying sales were 31% lower. This decline reflected lower automotive end market sales and reduced raw material surcharge revenue, as average commodity input costs were lower than had been experienced in 2008. Against a backdrop of declining markets, Hoeganaes increased market share in the key geographic markets of North America and Europe. Total tons shipped were 22% lower than in 2008.
After reporting a £14 million trading loss in the first half of 2009, Powder Metallurgy benefited in the second half from the gradual recovery in sales volumes and the impact of the significant restructuring programme. Both Sinter Metals and Hoeganaes reported trading profits across all regions in the second half of the year. In the year ended 31 December 2009, Powder Metallurgy reported a trading loss of £7 million (2008: £2 million trading loss).
Restructuring actions implemented to re-position the business in light of the economic slowdown included the closure and cessation of production at three facilities, headcount reductions and extensive use of government supported short-time working, which has steadily diminished as the year has progressed. A further 500 jobs were lost in 2009, bringing the total headcount reduction since the commencement of the programme in mid 2008 to 1,100.
Net restructuring costs in 2009 totalled £20 million in relation to redundancies, short-time working and facility closure costs. No impairment charges were incurred in 2009 (2008: £100 million).
The management actions in 2009 to protect cash flow included reducing working capital and capital expenditure. As a result, inventories were reduced by 23% at constant currency rates and capital expenditure on tangible fixed assets reduced to £10 million (2008: £35 million). The ratio of capital expenditure to depreciation consequently reduced to 0.3 times (2008: 1.1 times).
Increasing trends to improve fuel efficiency and reduce emissions, such as variable valve timing in engines, high performance gear sets in automatic transmissions and differential gears, are driving the demand for products made by powder metallurgy. Approximately £75 million of new programme business was awarded in the period. In addition, a further £25 million of annualised sales of existing programmes were won from competitors. New product launches included the first application of GKN's innovative planetary pump as an integral part of the double clutch transmission on the Ferrari California and a number of powder metallurgy parts for the Tata Nano, a low cost vehicle for the Indian market.
The full year divisional trading margin in 2009 was (1.4)% (2008: (0.3)%), although in the fourth quarter the trading margin was 3.4% reflecting improved business performance and market conditions. Return on invested capital was (1.6)% (2008: (0.4)%).
Aerospace
Aerospace is a global first tier supplier of airframe and engine structures, components, assemblies, transparencies and engineering services to a wide range of aircraft and engine prime contractors and other first tier suppliers. It operates in three main product areas: aerostructures, engine components and sub-systems and special products.
The overall aerospace market remained positive in 2009 with growth in the defence sector and large civil aircraft deliveries remaining high. Airbus delivered 498 aircraft, an increase of 15 on the prior year, and Boeing delivered 481 aircraft, an increase of 106 on the prior year.
The market for business and regional jets has however been very weak with volumes substantially down.
US defence spending remained strong in 2009, driven by the budget set by the previous US administration and ongoing operational requirements. The 2010 fiscal year budget from the current administration has restricted production of the Lockheed F-22A fighter jet programme to 187 aircraft. Demand remained strong for other combat aircraft such as F/A-18 E/F, helicopters including the Blackhawk, and transport aircraft, particularly the C17 and C130J. The Lockheed F-35 (Joint Strike Fighter) remains a key defence programme committed to by the US Department of Defense with plans to build some 2,443 aircraft. Overall, demand in the US defence sector is expected to remain robust throughout 2010 and the Defense Department 2011 budget plan assumes growth of around 3% per annum over the next several years. In Europe, where GKN has very limited exposure, defence budgets remain under pressure and in Asia, a number of significant export programmes are being pursued by GKN's customers.
Aerospace sales of £1,486 million were £484 million (48%) higher than the prior year (2008: £1,002 million). The Filton plant, acquired on 5 January 2009, added £330 million while the impact of currency translation was £129 million positive. The underlying increase of £25 million represented a 2% improvement.
The acquisition of the wing component and sub-assembly facility at Filton is expected to provide excellent growth opportunities as the site becomes the Group's globally competitive UK centre of excellence for the design and manufacture of composite aircraft wing structures. As part of the acquisition, Airbus awarded GKN "life of programme" contracts on all Airbus aircraft programmes for wing components and sub-assemblies in production at Filton at the time which enhances GKN's capability to design and manufacture major sub-assemblies for large aircraft wings. The main intangible asset recorded on acquisition related to the customer relationship with Airbus. GKN also signed contracts with Airbus for significant work packages to design and produce large scale composite structures for the wing of the new A350 long haul airliner. This contract further extends the Group's market position in primary composite wing structures. The Group expects the Filton acquisition to enable new contracts to be secured with Airbus in the future and to enhance relationships with other customers.
Trading profit increased by £64 million to £169 million (2008: £105 million). Filton contributed £40 million and the impact from currency on translation of results was £15 million. Excluding these factors the increase was £9 million, including a first quarter realisation on programme development costs of £5 million and a second quarter £5 million net pension curtailment gain. The first half was impacted by start up costs on new programmes, disruption costs as a result of the delays on the Boeing 787 and the decline in business jet and general civil aviation and aftermarket sales, particularly in engine products. Through the second half of the year production volumes stabilised and operating performance improved as a result of process improvements and the benefits from restructuring. Overall, the trading margin increased to 11.4% (2008: 10.5%), with the underlying margin from Filton of above 10%. The underlying margin excludes the impact of fair value accounting and certain foreign exchange rate gains. Return on invested capital was 24.2% (2008: 16.4%).
As a result of some softening in large civil aircraft production in the second half and the ongoing objective to reduce costs and improve efficiency, GKN Aerospace continued its restructuring activities with the loss of around 600 jobs in 2009 and the commencement of facility closures in the UK and US. Restructuring charges were taken amounting to £10 million (2008: £3 million).
Management actions to preserve cash continued with the emphasis on reduced working capital. As a result, inventories (excluding Filton) fell by 12% at constant currency rates which improved inventory turns by 1 times to 7 times.
Capital expenditure on tangible assets in 2009 amounted to £43 million (2008: £30 million) which represents 1.0 times depreciation (2008: 1.2 times). £24 million of the capital expenditure relates to our involvement on the Airbus A350 wing assembly and trailing edge programme. Further significant investment on this programme is planned over the next few years, partly funded by £60 million of UK Government refundable advances, £28 million of which was received in 2009.
GKN expenditure on non-recurring programme costs was £13 million (2008: £9 million) including those associated with the Airbus A350 and the Boeing 767 winglet.
GKN Aerospace secured a number of new programmes and achieved a number of significant milestones during the year, including:
·; the successful integration of Filton into GKN ownership with no disruption to manufacturing and customer delivery schedules;
·; commissioning of the new state of the art facility for the A350 in Bristol, UK. The first of five advanced auto fibre placement machines was installed in the fourth quarter of 2009. Production is scheduled to commence in 2011;
·; a contract with a potential value of $350,000 per ship-set was awarded for supply of the composite inboard/outboard flap components for the A350;
·; a new supply contract with BAE for hard metal machining and composite manufacture, in the UK and US, of Joint Strike Fighter fuselage components, with a value of around $200 million;
·; Bombardier C series winglets contract with a potential order of 1000 aircraft; and
·; initial successful trial of a composite fan blade in the joint venture with Rolls-Royce.
The division has a balanced position in civil and defence programmes and has continued to secure its market position with a range of customers and programmes that maintains its diversity. A large number of these programmes are now entering the initial phase of scheduled ramp-up and are projected to reach rate production over the period 2010 to 2016.
OffHighway
OffHighway designs, manufactures and distributes, on a global basis, a portfolio of products for off-highway vehicles primarily in the agricultural, construction, mining and other specialty vehicle markets. It consists of three primary business streams - driveline products, wheels and aftermarket. The division has a leading global position in the supply of power take-off shafts and wheels.
European agricultural markets weakened considerably as the year progressed, with a more pronounced decline in the second half. This was fuelled by the prevailing economic conditions, de-stocking actions within the supply chain, lower commodity prices and lack of availability of finance. Demand for US agricultural machinery was also sharply down as farm income fell as a result of lower commodity prices.
In the construction equipment market, the fall off in sales started towards the end of 2008 due to the recessionary conditions persisting in both European and US markets and extensive de-stocking by customers. The low level of housing starts in the US and Europe has continued to depress demand for light construction equipment. Demand in mining markets remained stable at the beginning of 2009 due to the longer equipment ordering cycle in this industry, but weakened thereafter.
The industrial machinery sector includes products for material handling and a range of other applications. Demand in this sector weakened significantly reflecting difficult economic conditions in many markets and subsequent reductions in capital expenditure by end customers across many industries.
Against this background, sales were £361 million, £192 million lower than the prior year (2008: £553 million). Excluding the currency translation benefit of £75 million, the underlying decrease in sales was £267 million (43%) with all product areas and regions suffering a decline. The rate of deterioration increased in the second half when agricultural markets weakened, whilst construction, mining and industrial machinery market demand remained subdued and underlying second half sales were 52% lower than the comparable period in 2008.
The division reported a trading loss of £12 million (2008: trading profit of £40 million). The underlying decline was £59 million adjusted for a favourable currency translation effect of £7 million. Trading margin was (3.3)% compared with 7.2% in 2008. Although the fourth quarter trading margin was still negative at (5.4)%, this represented a notable improvement over the third quarter trading margin of (9.2)%. Return on invested capital was (5.5)% (2008: 19.0%).
Management actions to restructure the business in response to the economic conditions were broadened and accelerated during the year. Headcount reduced by around 960, bringing the total reduction since October 2008 to 1,400. Four facilities were shut or reorganised and a fifth will be closed during the first half of 2010.
Restructuring actions during the year resulted in charges of £26 million (2008: £3 million) of which redundancy and reorganisation costs were £16 million, goodwill and fixed asset impairments of £9 million and short-time working of £1 million.
Capital expenditure on tangible fixed assets was £11 million (2008: £14 million), 0.8 times (2008: 1.2 times) depreciation.
Despite poor end markets, good progress was made in attracting a high level of new business. Specific areas of success included new orders for Rockford driveshafts for a Liebherr articulated dump truck and a five-year global supply contract for small wheels to Kion. New products to GKN were large multi-piece wheels (46 inch to 63 inch) for mining equipment and a cost saving "Profi-fit" wheel design, the first customer for which was John Deere.
Following an operational and strategic review, the Group has decided to exit its interest in the low technology axles market with all options being considered. These businesses recorded a trading loss of £4 million (2008: £1 million).
Corporate costs
Corporate costs, which comprise the costs of stewardship of the Group and operating charges associated with the Group's legacy businesses, were £12 million (2008: £12 million) and included a first half legacy post-employment past service credit of £1 million and also second half legacy and project related charges amounting to £2 million.
Restructuring and impairment charges
Group restructuring and impairment charges of £141 million (2008: £163 million) relate to the restructuring programme initially announced in November 2008 and updated during the course of 2009. The major elements arose within subsidiaries and represent redundancy and re-organisation costs (£108 million) and short-time working costs (£24 million). Net impairment charges amounted to £9 million and included an impairment reversal of £3 million in respect of the Jilin joint venture interest. The restructuring measures were put in place in response to significantly lower production volumes in the Automotive, Powder Metallurgy and OffHighway businesses and the general economic decline. Further restructuring charges of around £37 million, including £6 million short-time working, are expected in 2010 as facility rationalisation and closure actions are concluded.
Profits and losses on sale or closures of businesses
A £2 million currency surplus arose on the disposal of the Group's investment in its Driveline Jilin joint venture.
Amortisation of non-operating intangibles arising on business combinations
The charge for the amortisation of non-operating intangibles (e.g. customer contracts and relationships, trademarks, non-compete agreements and intellectual property rights) arising on business combinations increased to £24 million (2008: £10 million), primarily due to the Filton acquisition.
Change in value of derivative and other financial instruments
The Group enters into foreign exchange contracts to hedge much of its transactional exposure. At 1 January 2009 the net fair value of such instruments was a liability of £130 million and at the end of 2009 the figure was a liability of £43 million. Where hedge accounting has not been applied, the change in fair value between 1 January 2009 and 31 December 2009, or the date of maturity if earlier, is reflected in the income statement as a component of operating profit and has resulted in a credit of £106 million (2008: £175 million charge). There was a £29 million charge arising from the change in the value of embedded derivatives in the year (2008: £43 million credit) and a charge of £3 million attributable to the translational currency impact on Group funding balances (2008: £9 million credit). There were also changes in the value of Powder Metallurgy commodity contracts of £2 million credit (2008: £1 million charge).
Operating profit
Operating profit of £39 million compared with an operating loss of £86 million in 2008.
Post-tax earnings of joint ventures
The post-tax earnings of joint ventures in the year were £21 million (2008: £6 million) which included an impairment reversal of £3 million (2008: £10 million charge). Post-tax earnings on a management basis were £18 million (2008: £16 million), with trading profit of £23 million (2008: £20 million). The 2009 tax charge amounted to £4 million (2008: £4 million) with an interest charge of £1 million (2008: £nil). Underlying trading profit declined £1 million as the strong performance in our Chinese joint venture, up £8 million, was offset by underlying trading losses, down £9 million, primarily in Emitec and Chassis Systems.
Net financing costs
Net financing costs totalled £114 million (2008: £50 million) and include the non-cash charge on post-employment benefits of £49 million (2008: £3 million). The net of interest payable and interest receivable was £64 million (2008: £47 million) and arose mainly on the bonds and bank borrowings. The £17 million increase in net interest payable mainly reflects the absence of balance sheet translation cover interest benefits and charges (£7 million) incurred when the Group bought £124 million of its outstanding bonds. The interest income benefit of the second half rights issue proceeds is estimated at £1 million. Interest costs attributable to the Group's A350 investment have been capitalised in 2009 amounting to £1 million.
The non-cash charge on post-employment benefits arises as the expected return on scheme assets of £121 million (2008: £163 million) was more than offset by interest on post-employment obligations of £170 million (2008: £166 million). Details of the assumptions used in calculating post-employment costs and income are provided in note 14 of this news release.
Profit/(loss) before tax
The management profit before tax was £83 million (2008: £170 million). The loss before tax on a statutory basis was £54 million compared with a £130 million loss before tax in 2008.
Taxation
The tax charge on management profits of subsidiaries of £65 million (2008: £154 million) was £11 million (2008: £1 million charge), representing a 16.9% tax rate (2008: 0.6%).
Compared with the weighted average tax rate for the Group of 31%, the 2009 tax rate has benefited from a combination of the release of provisions for uncertain tax positions, the recognition of previously unrecognised deferred tax assets and certain tax refunds. Certain other items have tended to increase the tax rate, including the treatment for tax of exchange variations, the reversal of a prior year tax credit in respect of discontinued operations and the non-recognition of deferred tax assets arising in the year. The reported net tax rate was 16.9% (2008: 0.6%).
GKN's tax strategy continues to be aimed at creating a sustainable 'cash tax' charge that balances minimising tax payments with the need to comply with the tax laws of each country in which we operate. The 'cash tax' charge excludes deferred taxes, movements in provisions for uncertain tax positions and tax relating to those non-trading elements of operating profit identified separately in the income statement. In 2009 the cash tax charge was 29% (2008: 17%) which exceeds the "20% or below" cash tax rate expected. This increase is primarily a result of the unusual profit profile across our trading markets, exaggerated by the low level of underlying profits in 2009. In the near term we expect the cash tax rate to revert to an average of 20% or below as we continue to make use of prior years' tax losses, incentives and deductions in the various countries in which we operate.
For 2010 and beyond, the overall reported tax rate is likely to continue to be volatile, primarily due to movements in provisions for uncertain tax positions and the recognition/derecognition of deferred tax assets. Unrecognised, potential deferred tax assets principally relate to brought forward tax losses and pension liabilities in the UK and US.
The total effective tax rate of continuing subsidiaries based on statutory profit before tax was 20.0% (2008: 7.4%) arising as a £15 million tax credit on a loss of £75 million.
Non-controlling interests
The profit attributable to non-controlling interests was £2 million (2008: £2 million).
Earnings per share
Earnings per share on a continuing basis were (3.2) pence (2008: (11.7) pence as restated for the impact of the rights issue). Management earnings per share were 5.5 pence (2008: 16.0 pence - restated). The reductions are mainly due to lower profitability of the Group, discussed above. Average shares outstanding in 2009 were 1,271.7 million and shares outstanding at the year end were 1,552.3 million.
Dividend
In view of the continued difficult trading environment, the Board has decided not to pay a final dividend for 2009 (2008: nil pence per share). The total dividend for the year is, therefore, nil pence (2008: 4.5 pence per share, 3.0 pence per share restated). The Group intends to pay a dividend on both 2010 interim and final earnings. The level recommended by the Board will be commensurate with achieved earnings and take into account the outlook for our end markets at that time. In the medium term, it is the intention to resume a progressive dividend policy based on an underlying earnings cover ratio of around 2.5 times.
Cash flow
Operating cash flow, which is defined as cash generated from operations of £288 million (2008: £328 million) adjusted for capital expenditure (net of proceeds from capital grants) of £153 million (2008: £204 million), proceeds from the disposal / realisation of fixed assets of £35 million (2008: £7 million) and UK Government refundable advances of £28 million (2008: £nil), was an inflow of £198 million (2008: £131 million).
Within operating cash flow there was an inflow of working capital and provisions of £133 million (2008: outflow of £5 million), principally as a result of reduced inventory across the Group.
Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £153 million (2008: £204 million). Of this, £139 million (2008: £191 million) was on tangible fixed assets and was 0.7 times (2008: 1.2 times) the depreciation charge. Aside from the Group's A350 programme investment commitments, the ratio for 2010 is expected to remain at or below 0.7 times.
Expenditure on intangible assets, mainly initial non-recurring costs on Aerospace programmes, totalled £14 million (2008: £13 million), including £8 million on the A350 programme.
Net interest paid totalled £61 million compared with £48 million in 2008, including £5 million accrued interest relating to the bond buyback.
Tax paid in the year was £15 million (2008: £45 million).
As no final dividend for 2008 or interim dividend for 2009 was paid, the cash cost excluding dividends paid to minorities was £nil (2008: £97 million).
Free cash flow
Free cash flow, which is operating cash flow including joint venture dividends and after interest, tax and dividends paid, was an inflow of £136 million (2008: £38 million outflow) after £99 million (2008: £28 million) of expenditure on the Group's restructuring programmes. The year on year improvement reflects a strong focus on working capital, particularly inventory reduction, lower capital expenditure, lower tax payments and the absence of a current year dividend,
Net borrowings
At the end of the year, the Group had net debt of £300 million (2008: £708 million). This includes £403 million net proceeds from the rights issue, which were received in July 2009, and acquisition expenditure (including investments in joint ventures and investment loans and capital contributions) of £112 million (2008: £1 million) primarily relating to the Filton transaction.
Customer advances in the Aerospace businesses, which are shown in trade and other payables in the balance sheet, amounted to £66 million (2008: £79 million). The Group's share of net funds in joint ventures was £9 million (2008: share of net borrowings £1 million).
Pensions and post-employment obligations
GKN operates a number of defined benefit and defined contribution pension schemes together with retiree medical arrangements across the Group. The total charge to trading profit in respect of current and past service costs, together with curtailments of defined benefit schemes and retiree medical arrangements, was £22 million (2008: £25 million), whilst other net financing charges included in net financing costs were £49 million (2008: £3 million).
The decrease in the charge to trading profit mainly reflects a reduction in current service cost of £2 million in the US as a result of closing most pension plans to future accrual, together with changes to life insurance benefits. The 2009 actions in the US also resulted in a total of £12 million in past service and curtailment credits (2008: £12 million). Further information including asset, liability and mortality assumptions used is provided in note 14 of this news release.
UK pensions
The UK defined benefit scheme is considered to be relatively mature with around 4,800 of its 52,000 members currently in service. The UK defined benefit scheme remains open to new members and is run on a funded basis with funds set aside in trust to cover future liabilities to members. The scheme specific funding valuation and schedule of contributions as at April 2007 remains in force, whilst the next triennial scheme specific valuation will be as at April 2010.
The charge relating to the UK defined benefit scheme reflected in trading profit in respect of current and past service costs/curtailments was £20 million (2008: £21 million), whilst other net financing costs were £23 million (2008: £13 million credit). Restructuring activities attracted a past service charge of £1 million (2008: £1 million).
The accounting deficit at 31 December 2009 of £499 million (2008: £272 million) was significantly higher than that at the end of 2008. This was mainly as a result of increased liabilities from changes in discount rate and inflation assumptions underlying the valuation. The increase in liabilities was only partially offset by higher asset values from higher investment returns.
Overseas pensions
Overseas pension obligations arose mainly in the US, Germany and Japan.
The charge to trading profit in respect of current and past service costs/curtailments was £6 million (2008: £4 million), whilst other net financing charges included in net financing costs were £23 million (2008: £13 million). Trading profit benefited from the one-time curtailment/past service credit of £7 million, largely in the Americas.
The reduction of £50 million in the accounting deficit to £443 million was principally a result of currency movements as the increase in liabilities from changes in the discount rate assumptions was largely offset by increased asset returns.
Retiree medical and life insurance
GKN operates retiree medical and life insurance arrangements in the Americas and has a scheme, closed to new members, in the UK.
The credit to trading profit in 2009 was £4 million (2008: £nil), this included a £5 million past service credit resulting from changes to life insurance arrangements in the US. Other net financing charges included in net financing costs were £3 million (2008: £3 million).
As a result of these changes, the impact of currency translation and changes in the discount rates used to value the liabilities, the obligation in respect of all schemes at the end of the year was £54 million compared with £69 million at the end of 2008.
Summary
At 31 December 2009 the funded post-employment obligations of the Group totalled £610 million (2008: £435 million), whilst unfunded post-employment obligations of the Group totalled £386 million (2008: £399 million), details of which can be found in note 14 of this news release.
Net assets
Net assets of £972 million were £44 million higher than the December 2008 year end figure of £928 million. The increase was mainly due to rights issue net proceeds of £403 million, offset by currency movements of £160 million and actuarial changes in respect of post-employment obligations of £190 million.
Shareholders' equity
Shareholders' equity at the end of 2009 was £948 million compared with £905 million at the end of 2008.
Exchange rates
Relative exchange rates used for currencies most important to the Group's operations are:
|
|
Average |
Year End |
||
|
|
2009 |
2008 |
2009 |
2008 |
|
Euro |
1.12 |
1.26 |
1.13 |
1.03 |
|
US dollar |
1.56 |
1.85 |
1.61 |
1.44 |
The approximate impact on 2009 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro - £0.2 million, US dollar - £0.7 million.
Funding and liquidity
The Group funds its operations through a mixture of retained earnings and borrowing facilities, including bank and capital markets borrowings and leasing. The relative proportions of equity and borrowings are governed by specific Board approved parameters. These are designed to preserve prudent financial ratios, including interest, dividend and cash flow cover, whilst also minimising the overall weighted average cost of capital to the Group. The Group's borrowing facilities are arranged by Group Treasury and the funds raised are then lent to operating subsidiaries on commercial arm's length terms. In some cases, operating subsidiaries have external borrowings, but these are supervised and controlled centrally. The Group's objective is to maintain a balance between continuity of funding and flexibility through borrowing at a range of maturities. Wherever practicable, pooling, netting or concentration techniques are employed to minimise gross debt of the Group.
At 31 December 2009 there were £13 million of drawings against the £709 million of the Group's UK committed credit facilities. The £709 million of committed facilities include an £80 million, 8 year facility from the European Investment Bank agreed in December 2009. Following the bond buy back, capital market borrowings reduced to £551 million and include unsecured issues of £201 million 7% bonds maturing in May 2012 and £350 million 6.75% bonds maturing in October 2019. In total, the Group's bank committed credit facilities have maturities ranging from 2010 to 2017. The weighted average maturity profile of the Group's committed borrowing facilities was 4.5 years. This leaves the Group well placed in the short term to withstand sudden changes in liquidity in the financial markets, although the tightening of available credit means that it may be more expensive to refinance the Group's borrowing facilities as they mature.
All of the Group's committed credit facilities have a single financial covenant requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable. EBITDA of subsidiaries is before restructuring and impairment charges, amortisation of non-operating intangible assets and other non-cash charges arising on business combinations, profit and losses on sale or closures of businesses and the change in the value of derivative and other financial instruments. Net interest payable excludes the finance element of post-employment costs. For the 12 months to 31 December 2009 this ratio stood at 5.2 times (5.9 times excluding the £7 million cost of the bond buy back).
Financial resources and going concern
At 31 December 2009 the Group had net borrowings of £300 million. In addition, it had available, but undrawn, committed UK borrowing facilities totalling £696 million. Of the Group's total committed borrowing facilities, £350 million is due to expire in July 2010.
The Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of committed available borrowing facilities. The assessment included a review of both divisional and Group financial forecasts, financial instruments and hedging arrangements for the 15 months from the balance sheet date. Major assumptions have been compared to external reference points such as global light vehicle volumes, build schedules from aircraft assemblers and market forecasts from major manufacturers of agricultural and construction machinery.
Recognising the remaining uncertainties around our end markets, a sensitivity analysis has been performed on our forecasts to assess the impact of different scenarios on facility headroom and banking covenants. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences.
Having undertaken this work, the Directors are of the opinion that the Group has adequate committed resources to fund its operations for the foreseeable future and so determine that it is appropriate for the financial statements to be prepared on a going concern basis.
APPENDICES
These appendices do not form the statutory accounts of the Group. The statutory accounts for the year ended 31 December 2008 have been filed with the Registrar of Companies and contained an unqualified audit report. The audited results for 2009 were approved by the Board on 24 February 2010 and have been agreed with the auditors.
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Page number |
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GKN Consolidated financial information
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Consolidated Income Statement |
20 |
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Consolidated Statement of Comprehensive Income |
21 |
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|
|
|
|
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Consolidated Statement of Changes in Equity |
21 |
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|
|
|
|
Consolidated Balance Sheet (a) |
22 |
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Consolidated Cash Flow Statement |
23 |
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Note 1 - Segmental analysis |
24 |
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Notes 2 - 15 |
26-35 |
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(a) The 2008 Consolidated Balance Sheet has been restated following the adoption of the amendment to IAS 1 'Presentation of Financial Statements' covering the current/non-current classification of derivative financial instruments. |
|
Consolidated Income Statement |
||||
|
For the year ended 31 December 2009 |
||||
|
|
Notes |
2009 |
2008 |
|
|
|
|
£m |
£m |
|
|
|
|
|
|
|
|
Sales |
1 |
4,223 |
4,376 |
|
|
|
|
|
|
|
|
|
Trading profit |
1 |
129 |
201 |
|
|
Restructuring and impairment charges |
2 |
(144) |
(153) |
|
|
Amortisation of non-operating intangible assets arising on business combinations |
3 |
(24) |
(10) |
|
|
Profits and losses on sale or closures of businesses |
4 |
2 |
- |
|
|
Change in value of derivative and other financial instruments |
5 |
76 |
(124) |
|
Operating profit/(loss) |
|
39 |
(86) |
|
|
|
|
|
|
|
|
Share of post-tax earnings of joint ventures |
|
21 |
6 |
|
|
|
|
|
|
|
|
|
Interest payable |
|
(67) |
(66) |
|
|
Interest receivable |
|
3 |
19 |
|
|
Other net financing charges |
|
(50) |
(3) |
|
Net financing costs |
6 |
(114) |
(50) |
|
|
|
|
|
|
|
|
Profit/(loss) before taxation |
|
(54) |
(130) |
|
|
|
|
|
|
|
|
Taxation |
7 |
15 |
10 |
|
|
Profit/(loss) from continuing operations |
|
(39) |
(120) |
|
|
|
|
|
|
|
|
Profit after taxation from discontinued operations |
|
5 |
13 |
|
|
|
|
|
|
|
|
Profit/(loss) after taxation for the year |
|
(34) |
(107) |
|
|
|
|
|
|
|
|
Profit attributable to non-controlling interests |
|
2 |
2 |
|
|
Profit/(loss) attributable to equity shareholders |
|
(36) |
(109) |
|
|
|
|
(34) |
(107) |
|
|
|
|
|
|
|
|
Earnings per share - p (restated) |
8 |
|
|
|
|
Continuing operations - basic |
|
(3.2) |
(11.7) |
|
|
Continuing operations - diluted |
|
(3.2) |
(11.7) |
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|
Consolidated Statement of Comprehensive Income |
||||||||||||||
|
For the year ended 31 December 2009 |
||||||||||||||
|
|
Notes |
2009 |
2008 |
|||||||||||
|
|
|
£m |
£m |
|||||||||||
|
Profit/(loss) after taxation for the year |
|
(34) |
(107) |
|||||||||||
|
Other comprehensive income |
|
|
|
|||||||||||
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Currency variations |
|
|
|
|||||||||||
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|
Subsidiaries |
|
|
|
||||||||||
|
|
|
Arising in year |
|
(154) |
529 |
|||||||||
|
|
|
Reclassified in year |
|
8 |
- |
|||||||||
|
|
Joint ventures |
|
|
|
||||||||||
|
|
|
Arising in year |
|
(12) |
36 |
|||||||||
|
|
|
Reclassified in year |
|
(2) |
- |
|||||||||
|
Derivative financial instruments |
|
|
|
|||||||||||
|
|
Transactional hedging |
|
|
|
||||||||||
|
|
|
Arising in year |
|
2 |
(7) |
|||||||||
|
|
|
Reclassified in year |
|
5 |
(1) |
|||||||||
|
|
Translational hedging arising in year |
|
- |
(213) |
||||||||||
|
Actuarial gains and losses on post-employment obligations |
|
|
|
|||||||||||
|
|
Subsidiaries |
14 |
(190) |
(386) |
||||||||||
|
|
Joint ventures |
|
- |
- |
||||||||||
|
Tax on items taken directly to equity |
7 |
17 |
(23) |
|||||||||||
|
|
|
(326) |
(65) |
|||||||||||
|
Total comprehensive income/(expense) for the year |
|
(360) |
(172) |
|||||||||||
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Total comprehensive income/(expense) for the year attributable to: |
|
|
|
|||||||||||
|
|
Equity shareholders |
|
(362) |
(178) |
||||||||||
|
|
Non-controlling interests |
|
2 |
6 |
||||||||||
|
|
|
(360) |
(172) |
|||||||||||
|
Consolidated Statement of Changes in Equity |
||||||||||||||
|
For the year ended 31 December 2009 |
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|
|
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Other reserves |
|
||||||||
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Notes |
Share capital £m |
Share premium account £m |
Retained earnings £m |
Exchange reserve £m |
Hedging reserve £m |
Other reserves £m |
Share- holders' equity £m |
Non- controlling interests £m |
Total equity £m |
||||
|
At 1 January 2009 |
|
372 |
29 |
290 |
499 |
(204) |
(81) |
905 |
23 |
928 |
||||
|
Total comprehensive income/(expense) |
|
|
|
|
|
|
|
|
|
|
||||
|
|
for the year |
|
- |
- |
(213) |
(156) |
7 |
- |
(362) |
2 |
(360) |
|||
|
Rights issue |
|
85 |
- |
- |
- |
- |
338 |
423 |
- |
423 |
||||
|
Rights issue costs charged to share |
|
|
|
|
|
|
|
|
|
|
||||
|
|
premium |
|
- |
(20) |
- |
- |
- |
- |
(20) |
- |
(20) |
|||
|
Share-based payments |
|
- |
- |
2 |
- |
- |
- |
2 |
- |
2 |
||||
|
Transfers |
|
- |
- |
352 |
- |
- |
(352) |
- |
- |
- |
||||
|
Dividends paid to non-controlling interests |
|
- |
- |
- |
- |
- |
- |
- |
(1) |
(1) |
||||
|
At 31 December 2009 |
|
457 |
9 |
431 |
343 |
(197) |
(95) |
948 |
24 |
972 |
||||
|
At 1 January 2008 |
|
372 |
29 |
834 |
(34) |
17 |
(41) |
1,177 |
19 |
1,196 |
||||
|
Total comprehensive income/(expense) |
|
|
|
|
|
|
|
|
|
|
||||
|
|
for the year |
|
- |
- |
(492) |
535 |
(221) |
- |
(178) |
6 |
(172) |
|||
|
Sale of treasury shares |
|
- |
- |
1 |
- |
- |
- |
1 |
- |
1 |
||||
|
Share-based payments |
|
- |
- |
2 |
- |
- |
- |
2 |
- |
2 |
||||
|
Investment by non-controlling interests |
|
- |
- |
- |
- |
- |
- |
- |
1 |
1 |
||||
|
Transfers |
|
- |
- |
42 |
(2) |
- |
(40) |
- |
- |
- |
||||
|
Dividends paid to shareholders |
10 |
- |
- |
(97) |
- |
- |
- |
(97) |
- |
(97) |
||||
|
Dividends paid to non-controlling interests |
|
- |
- |
- |
- |
- |
- |
- |
(3) |
(3) |
||||
|
At 31 December 2008 |
|
372 |
29 |
290 |
499 |
(204) |
(81) |
905 |
23 |
928 |
||||
|
Other reserves include accumulated reserves where distribution has been restricted due to legal or fiscal requirements and accumulated adjustments in respect of piecemeal acquisitions. |
||||||||||||||
|
Consolidated Balance Sheet |
|||
|
At 31 December 2009 |
|||
|
|
|
|
Restated |
|
|
Notes |
2009 |
2008 |
|
|
|
£m |
£m |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Goodwill |
|
338 |
367 |
|
Other intangible assets |
|
187 |
153 |
|
Property, plant and equipment |
|
1,636 |
1,797 |
|
Investments in joint ventures |
|
112 |
119 |
|
Other receivables and investments |
|
24 |
23 |
|
Derivative financial instruments |
|
16 |
42 |
|
Deferred tax assets |
7 |
71 |
52 |
|
|
|
2,384 |
2,553 |
|
Current assets |
|
|
|
|
Inventories |
|
563 |
718 |
|
Trade and other receivables |
|
644 |
645 |
|
Current tax assets |
7 |
13 |
17 |
|
Derivative financial instruments |
|
6 |
20 |
|
Other financial assets |
11 |
20 |
- |
|
Cash and cash equivalents |
11 |
316 |
114 |
|
|
|
1,562 |
1,514 |
|
Total assets |
|
3,946 |
4,067 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Borrowings |
11 |
(72) |
(97) |
|
Derivative financial instruments |
|
(14) |
(56) |
|
Trade and other payables |
|
(873) |
(972) |
|
Current tax liabilities |
7 |
(79) |
(115) |
|
Provisions |
|
(84) |
(49) |
|
|
|
(1,122) |
(1,289) |
|
Non-current liabilities |
|
|
|
|
Borrowings |
11 |
(564) |
(725) |
|
Derivative financial instruments |
|
(51) |
(136) |
|
Deferred tax liabilities |
7 |
(57) |
(63) |
|
Trade and other payables |
|
(97) |
(38) |
|
Provisions |
|
(87) |
(54) |
|
Post-employment obligations |
14 |
(996) |
(834) |
|
|
|
(1,852) |
(1,850) |
|
Total liabilities |
|
(2,974) |
(3,139) |
|
|
|
|
|
|
Net assets |
|
972 |
928 |
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
Share capital |
|
457 |
372 |
|
Share premium account |
|
9 |
29 |
|
Retained earnings |
|
431 |
290 |
|
Other reserves |
|
51 |
214 |
|
|
|
948 |
905 |
|
Non-controlling interests |
|
24 |
23 |
|
Total equity |
|
972 |
928 |
|
Consolidated Cash Flow Statement |
|||
|
For the year ended 31 December 2009 |
|||
|
|
Notes |
2009 |
2008 |
|
|
|
£m |
£m |
|
Cash flows from operating activities |
|
|
|
|
Cash generated from operations |
13 |
288 |
328 |
|
Interest received |
|
7 |
18 |
|
Interest paid |
|
(68) |
(66) |
|
Tax paid |
|
(15) |
(45) |
|
Dividends received from joint ventures |
|
15 |
24 |
|
|
|
227 |
259 |
|
Cash flows from investing activities |
|
|
|
|
Purchase of property, plant and equipment |
|
(140) |
(192) |
|
Purchase of intangible assets |
|
(14) |
(13) |
|
Receipt of government refundable advance |
|
28 |
- |
|
Receipt of government capital grants |
|
1 |
1 |
|
Proceeds from sale and realisation of fixed assets |
|
35 |
7 |
|
Acquisition of subsidiaries (net of cash acquired) |
12 |
(99) |
(1) |
|
Proceeds from sale of joint ventures - continuing/discontinued |
|
1 |
18 |
|
Investment in joint ventures |
|
(2) |
(1) |
|
Investment loans and capital contributions |
|
(11) |
1 |
|
|
|
(201) |
(180) |
|
Cash flows from financing activities |
|
|
|
|
Net proceeds from rights issue |
|
403 |
- |
|
Net proceeds from other ordinary share capital transactions |
|
- |
1 |
|
Net proceeds from borrowing facilities |
|
148 |
112 |
|
Bond buy back including buy back premium |
|
(131) |
- |
|
Repayment of other borrowings |
|
(241) |
(33) |
|
Finance lease payments |
|
(1) |
(9) |
|
Settlement of forward foreign currency contracts for net investment hedging |
|
- |
(230) |
|
Dividends paid to shareholders |
10 |
- |
(97) |
|
Dividends paid to non-controlling interests |
|
(1) |
(3) |
|
|
|
177 |
(259) |
|
|
|
|
|
|
Currency variations on cash and cash equivalents |
|
(9) |
24 |
|
Movement in cash and cash equivalents |
|
194 |
(156) |
|
Cash and cash equivalents at 1 January |
|
94 |
250 |
|
Cash and cash equivalents at 31 December |
|
288 |
94 |
|
|
Notes to the Press Release |
||||||
|
1 |
Segmental analysis |
||||||
|
|
In accordance with IFRS 8 'Operating Segments' adopted in 2009, the Group's reportable segments have been determined based on reports reviewed by the Executive Committee led by the Chief Executive. The operating activities of the Group are structured according to the markets served; automotive, aerospace and offhighway. Automotive is managed according to product groups; driveline, structural and other components and powder metallurgy. Reportable segments derive their sales from the manufacture of products. Revenue from services, inter segment trading and royalties is not significant. |
||||||
|
a) |
Sales |
||||||
|
|
|
Automotive |
|
|
|
|
|
|
|
|
|
Other |
Powder |
|
|
|
|
|
|
Driveline |
Automotive |
Metallurgy |
Aerospace |
OffHighway |
Total |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
2009 |
|
|
|
|
|
|
|
|
Subsidiaries |
1,817 |
52 |
512 |
1,486 |
356 |
4,223 |
|
|
Joint ventures |
175 |
65 |
- |
- |
5 |
245 |
|
|
Management sales |
1,992 |
117 |
512 |
1,486 |
361 |
4,468 |
|
|
2008 |
|
|
|
|
|
|
|
|
Subsidiaries |
2,123 |
84 |
618 |
1,002 |
549 |
4,376 |
|
|
Joint ventures |
145 |
92 |
- |
- |
4 |
241 |
|
|
Management sales |
2,268 |
176 |
618 |
1,002 |
553 |
4,617 |
|
|
|
||||||
|
|
Subsidiary segmental sales gross of inter segment sales are; Driveline £1,829 million (2008: £2,143 million), Other Automotive £52 million (2008: £84 million), Powder Metallurgy £515 million (2008: £621 million), Aerospace £1,486 million (2008: £1,002 million) and OffHighway £366 million (2008: £558 million).
In 2009 and 2008, no customer accounted for 10% or more of subsidiary sales or management sales. |
||||||
|
|
|
||||||
|
b) |
Trading profit |
||||||
|
|
|
Automotive |
|
|
|
|
|
|
|
|
|
Other |
Powder |
|
|
|
|
|
|
Driveline |
Automotive |
Metallurgy |
Aerospace |
OffHighway |
Total |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|
2009 |
|
|
|
|
|
|
|
|
EBITDA |
102 |
1 |
24 |
217 |
3 |
|
|
|
Depreciation and impairment of property, plant and equipment |
(108) |
(2) |
(30) |
(41) |
(14) |
|
|
|
Amortisation of operating intangible assets |
(3) |
- |
(1) |
(6) |
(1) |
|
|
|
Trading profit/(loss) - subsidiaries |
(9) |
(1) |
(7) |
170 |
(12) |
141 |
|
|
Trading profit/(loss) - joint ventures |
25 |
(1) |
- |
(1) |
- |
23 |
|
|
Management trading profit/(loss) |
16 |
(2) |
(7) |
169 |
(12) |
164 |
|
|
Corporate costs |
|
|
|
|
|
(12) |
|
|
Management trading profit including corporate costs |
|
|
|
|
152 |
|
|
|
Less: Joint venture trading profit |
|
|
|
|
|
(23) |
|
|
Income statement - Trading profit |
|
|
|
|
|
129 |
|
|
2008 |
||||||
|
|
EBITDA |
168 |
- |
31 |
136 |
53 |
|
|
|
Depreciation and impairment of property, plant and equipment |
(92) |
(4) |
(32) |
(25) |
(12) |
|
|
|
Amortisation of operating intangible assets |
(3) |
- |
(1) |
(5) |
(1) |
|
|
|
Trading profit/(loss) - subsidiaries |
73 |
(4) |
(2) |
106 |
40 |
213 |
|
|
Trading profit/(loss) - joint ventures |
15 |
6 |
- |
(1) |
- |
20 |
|
|
Management trading profit/(loss) |
88 |
2 |
(2) |
105 |
40 |
233 |
|
|
Corporate costs |
|
|
|
|
|
(12) |
|
|
Management trading profit including corporate costs |
|
|
|
|
221 |
|
|
|
Less: Joint venture trading profit |
|
|
|
|
|
(20) |
|
|
Income statement - Trading profit |
|
|
|
|
|
201 |
|
|
No income statement items between trading profit and profit before tax are allocated to management trading profit, which is the Group's segmental measure of profit or loss.
Trading profit in 2009 includes a £5 million surplus on realisation of Aerospace fixed assets. As a result of changed customer contract requirements trading profit included a £3 million credit (2008: £5 million credit) from the release of unutilised provisions established on acquisition in an Aerospace business. Credits included within trading profit in respect of changes to US retiree benefit arrangements, net of expenses, arose as follows: Driveline £3 million (2008: £8 million); Powder Metallurgy £1 million (2008: £3 million), Aerospace £5 million (2008: nil) and Corporate £1 million (2008: nil). In 2008 trading profit included a £3 million charge in respect of abortive acquisition costs in Driveline. EBITDA is subsidiary trading profit before depreciation, impairment and amortisation charges included in trading profit. |
||||||
|
1 |
Segmental analysis (continued) |
||||||||||||||||||
|
c) |
Goodwill, fixed assets and working capital - subsidiaries only |
||||||||||||||||||
|
|
|
||||||||||||||||||
|
|
|
Automotive |
|
|
|
|
|||||||||||||
|
|
|
|
Other |
Powder |
|
|
|
||||||||||||
|
|
|
Driveline |
Automotive |
Metallurgy |
Aerospace |
OffHighway |
Total |
||||||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||||
|
|
2009 |
|
|
|
|
|
|
||||||||||||
|
|
Property, plant and equipment and operating intangible |
|
|
|
|
|
|
||||||||||||
|
|
|
fixed assets |
876 |
27 |
313 |
374 |
110 |
1,700 |
|||||||||||
|
|
Working capital |
82 |
5 |
65 |
80 |
31 |
263 |
||||||||||||
|
|
Net operating assets |
958 |
32 |
378 |
454 |
141 |
1,963 |
||||||||||||
|
|
Goodwill and non-operating intangible fixed assets |
78 |
- |
28 |
294 |
56 |
456 |
||||||||||||
|
|
Net investment |
1,036 |
32 |
406 |
748 |
197 |
2,419 |
||||||||||||
|
|
2008 |
|
|
|
|
|
|
||||||||||||
|
|
Property, plant and equipment and operating intangible |
|
|
|
|
|
|
||||||||||||
|
|
|
fixed assets |
994 |
30 |
366 |
357 |
131 |
1,878 |
|||||||||||
|
|
Working capital |
133 |
4 |
73 |
116 |
46 |
372 |
||||||||||||
|
|
Net operating assets |
1,127 |
34 |
439 |
473 |
177 |
2,250 |
||||||||||||
|
|
Goodwill and non-operating intangible fixed assets |
79 |
- |
32 |
250 |
72 |
433 |
||||||||||||
|
|
Net investment |
1,206 |
34 |
471 |
723 |
249 |
2,683 |
||||||||||||
|
|
|
||||||||||||||||||
|
d) |
Fixed asset additions, joint venture investments and other non cash items |
||||||||||||||||||
|
|
|
||||||||||||||||||
|
|
|
Automotive |
|
|
|
|
|
||||||||||||
|
|
|
|
Other |
Powder |
|
|
|
|
|||||||||||
|
|
|
Driveline |
Automotive |
Metallurgy |
Aerospace |
OffHighway |
Corporate |
Total |
|||||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||||||||||
|
|
2009 |
|
|
|
|
|
|
|
|||||||||||
|
|
Fixed asset additions and capitalised borrowing costs |
|
|
|
|
|
|
|
|||||||||||
|
|
- |
property, plant and equipment |
62 |
- |
9 |
45 |
6 |
- |
122 |
||||||||||
|
|
- |
intangible assets |
1 |
- |
- |
14 |
- |
- |
15 |
||||||||||
|
|
Joint ventures |
86 |
24 |
- |
- |
2 |
- |
112 |
|||||||||||
|
|
Other non cash items - share based payment |
1 |
- |
- |
- |
- |
1 |
2 |
|||||||||||
|
|
2008 |
|
|
|
|
|
|
|
|||||||||||
|
|
Fixed asset additions |
|
|
|
|
|
|
|
|||||||||||
|
|
- |
property, plant and equipment |
108 |
1 |
33 |
31 |
18 |
1 |
192 |
||||||||||
|
|
- |
intangible assets |
3 |
- |
- |
9 |
1 |
- |
13 |
||||||||||
|
|
Joint ventures |
90 |
27 |
- |
- |
2 |
- |
119 |
|||||||||||
|
|
Other non cash items - share based payment |
1 |
- |
- |
- |
- |
1 |
2 |
|||||||||||
|
|
|
||||||||||||||||||
|
e) |
Country analysis |
||||||||||||||||||
|
|
|
United |
|
|
Other |
Total |
|
||||||||||||
|
|
|
Kingdom |
USA |
Germany |
Countries |
Non-UK |
Total |
||||||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||||
|
|
2009 |
|
|
|
|
|
|
||||||||||||
|
|
Management sales by origin |
794 |
1,327 |
729 |
1,618 |
3,674 |
4,468 |
||||||||||||
|
|
Goodwill, other intangible assets, property, plant and |
|
|
|
|
|
|
||||||||||||
|
|
|
equipment and investments in joint ventures |
318 |
677 |
330 |
948 |
1,955 |
2,273 |
|||||||||||
|
|
2008 |
|
|
|
|
|
|
||||||||||||
|
|
Management sales by origin |
546 |
1,338 |
880 |
1,853 |
4,071 |
4,617 |
||||||||||||
|
|
Goodwill, other intangible assets, property, plant and |
|
|
|
|
|
|
||||||||||||
|
|
|
equipment and investments in joint ventures |
185 |
799 |
394 |
1,058 |
2,251 |
2,436 |
|||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
2 |
Restructuring and impairment charges |
||||||||||||||||||||||
|
|
|
2009 |
2008 |
||||||||||||||||||||
|
|
|
Subsidiaries |
Joint ventures |
Total |
Subsidiaries |
Joint ventures |
Total |
||||||||||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||||||||
|
|
Restructuring programmes |
|
|
|
|
|
|
||||||||||||||||
|
|
2008 programme |
(144) |
3 |
(141) |
(149) |
(10) |
(159) |
||||||||||||||||
|
|
2004 programme |
- |
- |
- |
(4) |
- |
(4) |
||||||||||||||||
|
|
|
(144) |
3 |
(141) |
(153) |
(10) |
(163) |
||||||||||||||||
|
|
The Group's 2004 restructuring programme concluded in the first half of 2008. The 2004 programme charges in 2008 related to Driveline. In response to the severe economic downturn in our automotive markets and in anticipation of activity reductions in both off-highway and aerospace markets, the Group commenced further restructuring in the final quarter of 2008.
The 2008 programme restructuring actions comprise facility and operation closures, permanent headcount reductions achieved through redundancy programmes and the structured use of short-time working arrangements, available through national or state legislation, by European, Japanese and North American subsidiaries. Where short-time working is utilised as the restructuring response to the severe economic and activity downturn it is the most cost-effective option available at that time. Employees subject to short-time working arrangements are not engaged in any activity (productive or non-productive) for or on behalf of the Group. Short-time working charges represent the labour and associated costs borne by the Group in respect of these employees for the period of short-time work.
|
||||||||||||||||||||||
|
|
2008 Restructuring programme |
||||||||||||||||||||||
|
|
|
|
|
|
2009 |
2008 |
|||||||||||||||||
|
|
|
|
|
|
£m |
£m |
|||||||||||||||||
|
|
Goodwill impairment |
|
|
|
(7) |
- |
|||||||||||||||||
|
|
Tangible fixed asset impairments/reversals |
|
|
|
(2) |
(125) |
|||||||||||||||||
|
|
Other asset write-downs |
|
|
|
(3) |
(4) |
|||||||||||||||||
|
|
Impairments |
|
|
|
(12) |
(129) |
|||||||||||||||||
|
|
Short-time working costs |
|
|
|
(24) |
(2) |
|||||||||||||||||
|
|
Redundancy and post-employment costs |
|
|
|
(86) |
(14) |
|||||||||||||||||
|
|
Other reorganisation costs |
|
|
|
(22) |
(4) |
|||||||||||||||||
|
|
Redundancy and other costs |
|
|
|
(132) |
(20) |
|||||||||||||||||
|
|
Subsidiaries |
|
|
|
(144) |
(149) |
|||||||||||||||||
|
|
Impairment reversal/impairment of joint ventures |
|
|
|
3 |
(10) |
|||||||||||||||||
|
|
Subsidiaries and joint ventures |
|
|
|
(141) |
(159) |
|||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
2008 Restructuring programme - analysis by segment |
||||||||||||||||||||||
|
|
|
2009 |
2008 |
||||||||||||||||||||
|
|
|
Impairments |
Short-time working |
Redundancy and other costs |
Total |
Impairments |
Short-time working |
Redundancy and other costs |
Total |
||||||||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||||||
|
|
Driveline |
1 |
(19) |
(63) |
(81) |
(25) |
(1) |
(7) |
(33) |
||||||||||||||
|
|
Other Automotive |
- |
- |
(4) |
(4) |
(11) |
- |
(2) |
(13) |
||||||||||||||
|
|
Powder Metallurgy |
- |
(4) |
(16) |
(20) |
(100) |
(1) |
(5) |
(106) |
||||||||||||||
|
|
Aerospace |
(1) |
- |
(9) |
(10) |
(3) |
- |
- |
(3) |
||||||||||||||
|
|
OffHighway |
(9) |
(1) |
(16) |
(26) |
- |
- |
(3) |
(3) |
||||||||||||||
|
|
Corporate |
- |
- |
- |
- |
- |
- |
(1) |
(1) |
||||||||||||||
|
|
|
(9) |
(24) |
(108) |
(141) |
(139) |
(2) |
(18) |
(159) |
||||||||||||||
|
|
Subsidiaries |
(12) |
(24) |
(108) |
(144) |
(129) |
(2) |
(18) |
(149) |
||||||||||||||
|
|
Joint ventures |
3 |
- |
- |
3 |
(10) |
- |
- |
(10) |
||||||||||||||
|
|
In Driveline, the closures of two facilities were announced in 2009 as part of the UK rationalisation programme with associated redundancy, pension and reorganisation charges of £6 million being made. Fixed asset impairments relating to this programme were charged in 2008 with subsequent utilisation of some of these assets resulting in partial reversal in 2009. In Japan, one facility closure was announced in 2009 as part of a facility rationalisation review, with activity transferred to another Japanese operation. Impairments and re-organisation costs of £5 million were charged. Elsewhere, headcount reductions have been progressing mainly in Germany, Spain, France and Australia. Short-time working costs relate mainly to European and Japanese operations. Closure of one joint venture facility was concluded in the year with another joint venture sold. The Group's investments in these joint ventures were written off in 2008. The sale of the latter joint venture enabled a partial reversal of the prior year impairment charge to its net realisable value.
In Other Automotive, actions continue relating to the ongoing rationalisation of a UK facility with charges incurred relating to redundancy and pension costs.
In Powder Metallurgy, the closure of two facilities were announced in the year which, combined with the completion of the closure previously announced in 2008, resulted in a £6 million redundancy and reorganisation charge. Redundancy costs of £8 million were also charged in relation to ongoing fixed cost reduction programmes across North American and European operations. Short-time costs relate mainly to European operations.
In OffHighway, actions have been initiated in the period to concentrate/exit production for certain product categories in certain regions and concentrate activities on one area of operation. As a consequence the closures of five facilities and rationalisation of a sixth has been commenced with an associated cost of £5 million and impairments of £9 million. Redundancy charges of £11 million were also made in respect of capacity and fixed cost reductions.
In Aerospace, the closures of two facilities were announced, one in the UK and one in North America, with a £2 million charge made in respect of redundancies product transfer costs and asset impairments. A further £8 million redundancy charge was made for rationalisation actions at other facilities.
Restructuring cash outflow in respect of 2008, 2004 and earlier periods' restructuring plans amounts to £99 million (2008: £28 million). |
||||||||||||||||||||||
|
3 |
Amortisation of non-operating intangible assets arising on business combinations |
|
||||
|
|
|
|
||||
|
|
|
2009 |
2008 |
|
||
|
|
|
£m |
£m |
|
||
|
|
Marketing related |
(1) |
- |
|
||
|
|
Customer related |
(20) |
(7) |
|
||
|
|
Technology based |
(3) |
(3) |
|
||
|
|
|
(24) |
(10) |
|
||
|
|
|
|
||||
|
4 |
Profits and losses on sale or closures of businesses |
|
||||
|
|
|
2009 |
2008 |
|
||
|
|
|
£m |
£m |
|
||
|
|
Profit on sale of joint venture |
2 |
- |
|
||
|
|
|
|
||||
|
|
On 10 October 2009 the sale of the Group's 50% share in Jilin GKN Norinco Drive Shaft Company Ltd to the Group's joint venture partner was completed. The Group's equity interest in Jilin was fully provided against in 2008 as a joint venture restructuring charge. This provision was partially reversed in 2009 to reflect the realisable value. The 2009 impairment reversal is shown as a restructuring credit. The profit above represents the recycling of cumulative translation adjustments. |
|
||||
|
|
|
|
||||
|
5 |
Change in value of derivative and other financial instruments |
|
||||
|
|
|
2009 |
2008 |
|
||
|
|
|
£m |
£m |
|
||
|
|
Forward currency contracts (not hedge accounted) |
106 |
(175) |
|
||
|
|
Embedded derivatives |
(29) |
43 |
|
||
|
|
Commodity contracts (not hedge accounted) |
2 |
(1) |
|
||
|
|
|
79 |
(133) |
|
||
|
|
Net gains and losses on intra-group funding |
|
|
|
||
|
|
|
Arising in year |
5 |
9 |
|
|
|
|
|
Reclassified in year |
(8) |
- |
|
|
|
|
|
(3) |
9 |
|
||
|
|
|
76 |
(124) |
|
||
|
|
|
|
||||
|
|
IAS 39 requires derivative financial instruments to be valued at the balance sheet date and any difference between that value and the intrinsic value of the instrument to be reflected in the balance sheet as an asset or liability. Any subsequent change in value is reflected in the income statement unless hedge accounting is achieved. Such movements do not affect cash flow or the economic substance of the underlying transaction. In 2009 and 2008 the Group used transactional hedge accounting in a limited number of instances. |
|
||||
|
|
|
|
||||
|
6 |
Net financing costs |
|
||||
|
|
|
|
2009 |
2008 |
|
|
|
|
|
|
£m |
£m |
|
|
|
|
Interest payable and fee expense |
|
|
|
|
|
|
|
|
Short-term bank, other borrowings and government refundable advances |
|
(13) |
(11) |
|
|
|
|
Loans repayable within five years |
|
(24) |
(29) |
|
|
|
|
Loans repayable after five years |
|
(24) |
(26) |
|
|
|
|
Bond buy back premium |
|
(7) |
- |
|
|
|
|
Borrowing costs capitalised |
|
1 |
- |
|
|
|
|
Finance leases |
|
- |
- |
|
|
|
|
|
(67) |
(66) |
|
|
|
|
Interest receivable |
|
|
|
|
|
|
|
|
Short-term investments, loans and deposits |
|
3 |
7 |
|
|
|
|
Net investment hedges |
|
- |
9 |
|
|
|
|
AgustaWestland escrow receipt |
|
- |
3 |
|
|
|
|
|
3 |
19 |
|
|
|
|
Net interest payable and receivable |
|
(64) |
(47) |
|
|
|
|
Other net financing charges |
|
|
|
|
|
|
|
|
Expected return on scheme assets |
|
121 |
163 |
|
|
|
|
Interest on post-employment obligations |
|
(170) |
(166) |
|
|
|
|
Post-employment finance charges |
|
(49) |
(3) |
|
|
|
|
Unwind of discounts |
|
(1) |
- |
|
|
|
|
|
(50) |
(3) |
|
|
|
|
|
|
(114) |
(50) |
|
|
|
|
The capitalisation rate on specific funding was 6.4% and on general borrowings was 6.1%. |
|||||
|
7 |
Taxation |
||||||||||
|
|
|
||||||||||
|
a) |
Tax expense |
||||||||||
|
|
|
|
|
||||||||
|
|
|
2009 |
2008 |
||||||||
|
|
Analysis of charge in year |
£m |
£m |
||||||||
|
|
Current tax (charge)/credit |
|
|
||||||||
|
|
|
Current year charge |
(31) |
(33) |
|||||||
|
|
|
Utilisation of previously unrecognised tax losses and other assets |
1 |
44 |
|||||||
|
|
|
Adjustments in respect of prior years |
5 |
(1) |
|||||||
|
|
|
Net movement on provisions for uncertain tax positions |
25 |
- |
|||||||
|
|
|
- |
10 |
||||||||
|
|
Deferred tax (charge)/credit |
|
|
||||||||
|
|
|
Origination and reversal of temporary differences (excluding post-employment obligations) |
54 |
69 |
|||||||
|
|
|
Tax in respect of post-employment obligations |
1 |
5 |
|||||||
|
|
|
Current year tax on change in value of derivative financial instruments |
(3) |
2 |
|||||||
|
|
|
Other changes in unrecognised deferred tax assets |
(42) |
(80) |
|||||||
|
|
|
Changes in tax rates |
2 |
2 |
|||||||
|
|
|
Adjustments in respect of prior years |
3 |
2 |
|||||||
|
|
|
15 |
- |
||||||||
|
|
Total tax credit for the year |
15 |
10 |
||||||||
|
|
|
|
|
||||||||
|
|
Tax in respect of restructuring, impairments, derivative and other financial instruments and other net financing charges |
||||||||||
|
|
|
Current tax credit |
- |
6 |
|||||||
|
|
|
Deferred tax credit |
26 |
5 |
|||||||
|
|
|
26 |
11 |
||||||||
|
|
|
|
|
||||||||
|
|
Current tax on foreign currency gains and losses on intra-group funding |
||||||||||
|
|
|
Current tax (charge)/credit |
(6) |
29 |
|||||||
|
|
|
||||||||||
|
|
|
2009 |
2008 |
||||||||
|
|
Tax reconciliation |
£m |
% |
£m |
% |
||||||
|
|
Profit/(loss) before tax |
(54) |
|
(130) |
|
||||||
|
|
Less share of post-tax earnings of joint ventures |
(21) |
|
(6) |
|
||||||
|
|
Profit/(loss) before tax excluding joint ventures |
(75) |
|
(136) |
|
||||||
|
|
|
|
|
|
|
||||||
|
|
Tax (charge)/credit calculated at 28% (2008: 28.5%) standard UK corporate tax rate |
21 |
28% |
39 |
29% |
||||||
|
|
Differences between UK and overseas corporate tax rates |
2 |
3% |
10 |
7% |
||||||
|
|
Non-deductible and non-taxable items |
(3) |
(4%) |
(11) |
(8%) |
||||||
|
|
Utilisation of previously unrecognised tax losses and other assets |
1 |
1% |
44 |
32% |
||||||
|
|
Other changes in unrecognised deferred tax assets |
(42) |
(56%) |
(80) |
(59%) |
||||||
|
|
Changes in tax rates |
2 |
3% |
2 |
1% |
||||||
|
|
Deferred tax credit/(charge) in respect of post-employment obligations |
1 |
1% |
5 |
4% |
||||||
|
|
Current year tax (charge)/credit on ordinary activities |
(18) |
(24%) |
9 |
6% |
||||||
|
|
Net movement on provision for uncertain tax positions |
25 |
33% |
- |
- |
||||||
|
|
Other adjustments in respect of prior years |
8 |
11% |
1 |
1% |
||||||
|
|
Total tax (charge)/credit for the year |
15 |
20% |
10 |
7% |
||||||
|
|
|
||||||||||
|
b) |
Tax in equity |
||||||||||
|
|
|
2009 |
2008 |
||||||||
|
|
Tax on items included in equity credit/(charge) |
£m |
£m |
||||||||
|
|
Deferred tax on post-employment obligations |
14 |
- |
||||||||
|
|
Deferred tax on non-qualifying assets |
(1) |
3 |
||||||||
|
|
Deferred tax on foreign currency gains and losses on intra-group funding |
(2) |
3 |
||||||||
|
|
Current tax on foreign currency gains and losses on intra-group funding |
6 |
(29) |
||||||||
|
|
|
17 |
(23) |
||||||||
|
|
|
|
|
||||||||
|
c) |
Current tax |
|
|
||||||||
|
|
|
2009 |
2008 |
||||||||
|
|
|
£m |
£m |
||||||||
|
|
Assets |
13 |
17 |
||||||||
|
|
Liabilities |
(79) |
(115) |
||||||||
|
|
|
(66) |
(98) |
||||||||
|
|
|
||||||||||
|
7 |
Taxation (continued) |
|||||||||||
|
|
|
|||||||||||
|
d) |
Recognised deferred tax |
|||||||||||
|
|
|
|||||||||||
|
|
Deferred tax is calculated in full on temporary differences under the liability method. |
|||||||||||
|
|
|
2009 |
2008 |
|||||||||
|
|
|
£m |
£m |
|||||||||
|
|
Deferred tax assets |
71 |
52 |
|||||||||
|
|
Deferred tax liabilities |
(57) |
(63) |
|||||||||
|
|
|
14 |
(11) |
|||||||||
|
|
|
|||||||||||
|
|
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the period are shown below: |
|||||||||||
|
|
|
|
|
|
|
|||||||
|
|
|
Assets |
|
Liabilities |
Total |
|||||||
|
|
|
Pensions |
Tax losses |
Other |
|
Fixed assets |
Other |
|
||||
|
|
|
£m |
£m |
£m |
|
£m |
£m |
£m |
||||
|
|
At 1 January 2009 |
44 |
27 |
87 |
|
(166) |
(3) |
(11) |
||||
|
|
Other movements |
32 |
- |
(32) |
|
- |
- |
- |
||||
|
|
Included in the Income Statement |
(9) |
19 |
(5) |
|
10 |
- |
15 |
||||
|
|
Included in equity |
14 |
- |
- |
|
(1) |
(2) |
11 |
||||
|
|
Subsidiaries acquired |
1 |
- |
- |
|
- |
- |
1 |
||||
|
|
Currency variations |
(8) |
(1) |
(4) |
|
12 |
(1) |
(2) |
||||
|
|
At 31 December 2009 |
74 |
45 |
46 |
|
(145) |
(6) |
14 |
||||
|
|
At 1 January 2008 |
21 |
47 |
69 |
|
(140) |
(16) |
(19) |
||||
|
|
Included in the Income Statement |
5 |
(29) |
(19) |
|
34 |
9 |
- |
||||
|
|
Included in equity |
- |
- |
- |
|
3 |
3 |
6 |
||||
|
|
Other movements |
11 |
(11) |
- |
|
- |
- |
- |
||||
|
|
Currency variations |
7 |
20 |
37 |
|
(63) |
1 |
2 |
||||
|
|
At 31 December 2008 |
44 |
27 |
87 |
|
(166) |
(3) |
(11) |
||||
|
|
|
|||||||||||
|
|
Deferred tax assets totalling £41 million (2008: £14 million) have been recognised relating to territories where tax losses have been incurred in the year. It is anticipated that future profitability arising from restructuring and other actions will result in their realisation. |
|||||||||||
|
|
|
|||||||||||
|
e) |
Unrecognised deferred tax assets |
|||||||||||
|
|
|
|||||||||||
|
|
Deferred tax assets have not been recognised in relation to certain taxable losses and other temporary differences on the basis that their future economic benefit is uncertain. The gross and tax values of these unrecognised assets together with any expiry dates where relevant are shown below. The tax value of the assets has been calculated using tax rates enacted or substantively enacted at the balance sheet date. |
|||||||||||
|
|
|
|
|
|
||||||||
|
|
|
2009 |
|
2008 |
||||||||
|
|
|
Tax value |
Gross |
Expiry |
|
Tax value |
Gross |
Expiry |
||||
|
|
|
£m |
£m |
period |
|
£m |
£m |
period |
||||
|
|
Tax losses - with expiry: national |
293 |
846 |
2010 - 2029 |
|
300 |
867 |
2009-2028 |
||||
|
|
Tax losses - with expiry: local |
41 |
491 |
2010 - 2029 |
|
44 |
532 |
2009-2028 |
||||
|
|
Tax losses - without expiry |
105 |
349 |
|
|
66 |
202 |
|
||||
|
|
Other temporary differences |
192 |
660 |
|
|
71 |
215 |
|
||||
|
|
Unrecognised deferred tax assets |
631 |
2,346 |
|
|
481 |
1,816 |
|
||||
|
|
|
|||||||||||
|
|
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries except where the distribution of such profits is planned. If the earnings were remitted in full tax of £19 million (2008: £28 million) would be payable. |
|||||||||||
|
|
|
|||||||||||
|
f) |
Franked Investment Income - Litigation |
|||||||||||
|
|
In September 2003 GKN filed a claim in the High Court of England and Wales ("the High Court") in respect of various Advance Corporation Tax payments made and Corporate Tax paid on certain foreign dividend receipts which, in its view, were levied by HMRC in breach of GKN's EU community law rights. GKN joined a Group Litigation Order ("GLO") with several other claimants and a test case was selected from the members of the GLO to proceed to trial on a representative basis.
At the commencement of that trial in June 2004 the High Court referred the test case to the European Court of Justice ("ECJ") for guidance on the issues raised. In December 2006 the ECJ issued its guidance to the High Court and the test case returned to the High Court for the full trial in July 2008. The High Court issued its judgment on 27 November 2008.
Both parties appealed to the Court of Appeal which heard their pleadings in October 2009 and issued its judgment on 23 February 2010. The Court's judgment has referred many issues back to the ECJ for clarification but more importantly has held that claims are restricted to six years from the date the disputed tax was paid. The effect of this, if ultimately upheld, is to deny the vast majority of claims in the GLO. Given the importance of the matters at issue, it is expected that appeals will ultimately be taken to the new Supreme Court and that this process may take several more years to conclude. GKN had successfully claimed and received in June 2009 an interim payment on account in the High Court of £4 million which is primarily interest attributable to the claim. This interim payment is potentially refundable to HMRC as a result of the Court of Appeal judgment and has not, therefore, been recognised in the income statement in the year.
The complexity of the case and uncertainty over the issues raised mean that it is not possible to predict with any reasonable degree of certainty what the final outcome could be. The range of possible outcomes is so wide that it is potentially misleading to quote any estimates of the possible recoveries at this stage. As a result no contingent asset has been recognised and disclosed in these financial statements. |
|||||||||||
|
8 |
Earnings per share |
||||||||||
|
|
|
||||||||||
|
|
|
2009 |
2008 |
||||||||
|
|
|
Earnings |
Weighted average number of shares |
Earnings per share |
Earnings |
Weighted average number of shares (restated) |
Earnings per share (restated) |
||||
|
|
|
£m |
m |
pence |
£m |
m |
pence |
||||
|
|
Continuing operations |
|
|
|
|
|
|
||||
|
|
Basic eps |
(41) |
1,271.7 |
(3.2) |
(122) |
1,044.2 |
(11.7) |
||||
|
|
Dilutive securities |
- |
- |
- |
- |
1.7 |
- |
||||
|
|
Diluted eps |
(41) |
1,271.7 |
(3.2) |
(122) |
1,045.9 |
(11.7) |
||||
|
|
|
||||||||||
|
|
Total basic and total diluted eps are (2.8)p (2008 restated: total basic and total diluted (10.4)p). Discontinued basic and discontinued diluted eps are 0.4p (2008 restated: discontinued basic and discontinued diluted 1.3p).
The weighted average number of shares, and resulting earnings per share, for the year ended 31 December 2008 has been restated for the bonus issue inherent in the rights issue that was approved on 6 July 2009. |
||||||||||
|
|
|
||||||||||
|
9 |
Adjusted performance measures |
||||||||||
|
|
|
||||||||||
|
a) |
Management profit before taxation |
||||||||||
|
|
|
2009 £m |
2008 £m |
||||||||
|
|
Management profit before taxation |
83 |
170 |
||||||||
|
|
Other net financing charges |
(50) |
(3) |
||||||||
|
|
Restructuring and impairment charges |
(144) |
(153) |
||||||||
|
|
Amortisation of non-operating intangible assets arising on business combinations |
(24) |
(10) |
||||||||
|
|
Profits and losses on sale or closure of businesses |
2 |
- |
||||||||
|
|
Change in value of derivative and other financial instruments |
76 |
(124) |
||||||||
|
|
Impairment/reversal in respect of joint ventures |
3 |
(10) |
||||||||
|
|
Income statement - Profit/(loss) before taxation |
(54) |
(130) |
||||||||
|
|
|
|
|
||||||||
|
b) |
Management earnings per share |
||||||||||
|
|
|
2009 £m |
2008 £m |
||||||||
|
|
Management profit before taxation |
83 |
170 |
||||||||
|
|
Tax on management profit before taxation |
(11) |
(1) |
||||||||
|
|
Non-controlling interests |
(2) |
(2) |
||||||||
|
|
Management earnings |
70 |
167 |
||||||||
|
|
Management basic eps - pence |
5.5 |
16.0 |
||||||||
|
|
|
|
|
||||||||
|
|
From 2009 onwards, management reporting measures exclude the impact of other net financing charges. Accordingly, prior year information has been re-presented.
The Directors consider adjusted earnings per share, as calculated above, gives a useful additional indicator of underlying performance.
|
||||||||||
|
10 |
Dividends |
||||||||||
|
|
|
Paid or proposed in respect of: |
Recognised |
||||||||
|
|
|
2009 pence |
2008 pence |
2009 £m |
2008 £m |
||||||
|
|
2007 final year dividend paid (9.2 pence per share, restated to 6.2 pence per share) |
- |
- |
- |
65 |
||||||
|
|
2008 interim dividend paid (restated - 3.0 pence per share) |
- |
4.5 |
- |
32 |
||||||
|
|
2008 final year dividend paid |
- |
- |
- |
- |
||||||
|
|
2009 interim dividend paid |
- |
- |
- |
- |
||||||
|
|
2009 final year dividend |
- |
- |
- |
- |
||||||
|
|
|
- |
4.5 |
- |
97 |
||||||
|
|
|
||||||||||
|
|
The Directors have decided not to pay a final dividend in respect of the financial year ended 31 December 2009.
The restated dividend per share represents the theoretical dividend per share that would have been paid had the bonus shares inherent in the rights issue, that was approved on 6 July 2009, been in existence at the relevant dividend dates. |
||||||||||
|
11 |
Net borrowings |
|||||||||||||||
|
|
|
|||||||||||||||
|
a) |
Analysis of net borrowings |
|||||||||||||||
|
|
|
Notes |
Current |
|
Non-current |
Total |
||||||||||
|
|
|
|
Within |
|
One to two |
Two to five |
More than |
Total |
|
|||||||
|
|
|
|
one year |
|
years |
years |
five years |
|
|
|||||||
|
|
|
|
£m |
|
£m |
£m |
£m |
£m |
£m |
|||||||
|
|
2009 |
|
|
|
|
|
|
|
|
|||||||
|
|
Other borrowings |
|
|
|
|
|
|
|
|
|||||||
|
|
£350 million 6¾% 2019 unsecured bond |
i |
- |
|
- |
- |
(347) |
(347) |
(347) |
|||||||
|
|
£201 million 7% 2012 unsecured bond |
i |
- |
|
- |
(201) |
- |
(201) |
(201) |
|||||||
|
|
Other secured US$ denominated loan |
|
(2) |
|
(2) |
(5) |
- |
(7) |
(9) |
|||||||
|
|
Other long term borrowings |
|
(6) |
|
(6) |
- |
- |
(6) |
(12) |
|||||||
|
|
Finance lease obligations |
iv |
(1) |
|
(1) |
(1) |
(1) |
(3) |
(4) |
|||||||
|
|
Bank overdrafts |
|
(28) |
|
- |
- |
- |
- |
(28) |
|||||||
|
|
Other short term bank borrowings |
|
(35) |
|
- |
- |
- |
- |
(35) |
|||||||
|
|
Borrowings |
|
(72) |
|
(9) |
(207) |
(348) |
(564) |
(636) |
|||||||
|
|
Bank balances and cash |
|
132 |
|
- |
- |
- |
- |
132 |
|||||||
|
|
Short term bank deposits |
ii |
184 |
|
- |
- |
- |
- |
184 |
|||||||
|
|
Cash and cash equivalents |
v |
316 |
|
- |
- |
- |
- |
316 |
|||||||
|
|
Other financial assets - bank deposits |
iii |
20 |
|
- |
- |
- |
- |
20 |
|||||||
|
|
Net borrowings |
|
264 |
|
(9) |
(207) |
(348) |
(564) |
(300) |
|||||||
|
|
2008 |
|
|
|
|
|
|
|
|
|||||||
|
|
Other borrowings |
|
|
|
|
|
|
|
|
|||||||
|
|
£350 million 6¾% 2019 unsecured bond |
i |
- |
|
- |
- |
(346) |
(346) |
(346) |
|||||||
|
|
£325 million 7% 2012 unsecured bond |
i |
- |
|
- |
(325) |
- |
(325) |
(325) |
|||||||
|
|
Other secured US$ denominated loan |
|
(2) |
|
(1) |
(4) |
(5) |
(10) |
(12) |
|||||||
|
|
Other long term borrowings |
|
(7) |
|
(37) |
(3) |
- |
(40) |
(47) |
|||||||
|
|
Finance lease obligations |
iv |
(1) |
|
(1) |
(2) |
(1) |
(4) |
(5) |
|||||||
|
|
Bank overdrafts |
|
(20) |
|
- |
- |
- |
- |
(20) |
|||||||
|
|
Other short term bank borrowings |
|
(67) |
|
- |
- |
- |
- |
(67) |
|||||||
|
|
Borrowings |
|
(97) |
|
(39) |
(334) |
(352) |
(725) |
(822) |
|||||||
|
|
Bank balances and cash |
|
102 |
|
- |
- |
- |
- |
102 |
|||||||
|
|
Short term bank deposits |
ii |
12 |
|
- |
- |
- |
- |
12 |
|||||||
|
|
Cash and cash equivalents |
v |
114 |
|
- |
- |
- |
- |
114 |
|||||||
|
|
Net borrowings |
|
17 |
|
(39) |
(334) |
(352) |
(725) |
(708) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Other borrowings include: Unsecured £350 million (2008: £350 million) 6¾% bond maturing in 2019 less unamortised issue costs of £3 million (2008: £4 million), unsecured £201 million (2008: £325 million) 7% bond maturing in 2012 less unamortised issue costs of nil (2008: nil) and a secured term loan of £9 million (2008: £12 million) secured by way of a fixed and floating charge on certain Aerospace fixed assets.
Notes
|
|||||||||||||||
|
|
i) |
Denotes borrowings at fixed rates of interest until maturity. All other borrowings and cash and cash equivalents are at variable interest rates.
|
||||||||||||||
|
|
ii) |
The average interest rate on short term bank deposits was 0.5% (2008: 2.2%). Deposits at 31 December 2009 had no fixed maturity date (2008: no fixed maturity date).
|
||||||||||||||
|
|
iii) |
The interest rate on bank deposits was 0.85%, deposits mature on 1 April 2010.
|
||||||||||||||
|
|
iv) |
Finance lease obligations gross of finance charges fall due as follows: £1 million within one year (2008: £1 million), £3 million in one to five years (2008: £4 million) and £1 million in more than five years (2008: £2 million).
|
||||||||||||||
|
|
v) |
£9 million (2008: £10 million) of the Group's cash and cash equivalents are held by the Group's captive insurance company to maintain solvency requirements and as collateral for Letters of Credit issued to the Group's principal external insurance providers. These funds, therefore, are not circulated within the Group on demand. |
||||||||||||||
|
|
|
|||||||||||||||
|
b) |
Analysis of net borrowings by currency |
|||||||||||||||
|
|
|
2009 |
2008 |
|||||||||||||
|
|
|
Borrowings |
Cash and cash equivalents |
Other financial assets |
Total |
Borrowings |
Cash and Cash equivalents |
Total |
||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||||||
|
|
Sterling |
(548) |
187 |
20 |
(341) |
(726) |
24 |
(702) |
||||||||
|
|
US dollar |
(24) |
18 |
- |
(6) |
(27) |
15 |
(12) |
||||||||
|
|
Euro |
(17) |
36 |
- |
19 |
(10) |
35 |
25 |
||||||||
|
|
Others |
(47) |
75 |
- |
28 |
(59) |
40 |
(19) |
||||||||
|
|
|
(636) |
316 |
20 |
(300) |
(822) |
114 |
(708) |
||||||||
|
12 |
Acquisitions |
|||||||
|
|
|
|||||||
|
|
On 5 January 2009, the Group acquired the trade and assets of the wing component manufacturing and assembly operation of Airbus UK which is located on the Airbus Filton site in the UK ("Filton"). |
|||||||
|
|
|
|
|
|
||||
|
|
|
IFRS carrying values at acquisition £m |
Fair value adjustments £m |
Fair values £m |
||||
|
|
Intangible assets |
- order book |
- |
5 |
5 |
|||
|
|
|
- customer relationships |
- |
79 |
79 |
|||
|
|
Property, plant and equipment |
48 |
9 |
57 |
||||
|
|
Inventories |
38 |
(2) |
36 |
||||
|
|
Trade and other receivables |
- |
- |
- |
||||
|
|
Trade and other payables |
- |
- |
- |
||||
|
|
Provisions |
- post-employment obligations |
- |
(20) |
(20) |
|||
|
|
|
- other |
- |
(34) |
(34) |
|||
|
|
Deferred tax |
- |
1 |
1 |
||||
|
|
Cash and cash equivalents |
- |
- |
- |
||||
|
|
|
86 |
38 |
124 |
||||
|
|
Goodwill |
|
|
8 |
||||
|
|
Total fair value of consideration |
|
|
132 |
||||
|
|
Consideration satisfied by: |
|
|
|
||||
|
|
Cash |
|
|
94 |
||||
|
|
Deferred and contingent consideration |
|
|
32 |
||||
|
|
Directly attributable costs |
|
|
6 |
||||
|
|
|
|
|
132 |
||||
|
|
|
|
|
|
||||
|
|
Goodwill is attributable to the value of the assembled workforce, expectation of winning future contracts with Airbus, gaining customer relationships with other customers and synergies. No technological rights or marketing related assets were acquired.
Fair value adjustments to 'Provisions - other' relate to non-beneficial lease rentals. The Group was apportioned floor area for the wing component manufacturing and assembly operation out of the larger Airbus headlease. The freeholder is a third party and the full above market rental cost of the apportioned Airbus headlease rental is required by covenant with the freeholder to be passed from Airbus to the Group. The Group is committed to the lease for the remaining seventeen year term of the headlease. The provision has been discounted.
The fair value of deferred and contingent consideration recognised upon acquisition includes £8 million (£9 million undiscounted) of consideration contingent upon Filton achieving certain levels of sales in 2013, 2014 and 2015. The undiscounted contingent consideration payable ranges from nil to £9 million.
The acquisition date coincided with the first day of operations in 2009. During the year Filton contributed sales of £330 million and trading profit of £40 million. |
|||||||
|
|
|
|||||||
|
13 |
Notes to the cash flow statement |
|||||||
|
|
|
|
|
|||||
|
|
|
2009 |
2008 |
|||||
|
a) |
Cash generated from operations |
£m |
£m |
|||||
|
|
Operating profit/(loss) |
39 |
(86) |
|||||
|
|
Adjustments for: |
|
|
|||||
|
|
Depreciation, impairment and amortisation of fixed assets |
|
|
|||||
|
|
|
Charged to trading profit |
|
|
||||
|
|
|
|
Depreciation |
193 |
165 |
|||
|
|
|
|
Impairment |
2 |
1 |
|||
|
|
|
|
Amortisation |
11 |
10 |
|||
|
|
|
Amortisation of non-operating intangible assets arising on business combinations |
24 |
10 |
||||
|
|
|
Restructuring and impairment charges |
9 |
127 |
||||
|
|
Changes in fair value of derivative financial instruments |
(71) |
133 |
|||||
|
|
Amortisation of capital grants |
(1) |
(2) |
|||||
|
|
Net profits on sale of fixed assets |
(6) |
(1) |
|||||
|
|
Profits and losses on sale or closure of businesses |
(2) |
- |
|||||
|
|
Charge for share-based payments |
2 |
2 |
|||||
|
|
Movement in post-employment obligations |
(45) |
(26) |
|||||
|
|
Change in inventories |
133 |
7 |
|||||
|
|
Change in receivables |
(36) |
93 |
|||||
|
|
Change in payables and provisions |
36 |
(105) |
|||||
|
|
|
288 |
328 |
|||||
|
b) |
Movement in net debt |
|
|
|||||
|
|
Net movement in cash and cash equivalents |
194 |
(156) |
|||||
|
|
Net movement in other borrowings |
93 |
(79) |
|||||
|
|
Bond buy back |
124 |
- |
|||||
|
|
Finance leases |
1 |
9 |
|||||
|
|
Currency variations |
(4) |
24 |
|||||
|
|
Subsidiaries acquired and sold |
- |
- |
|||||
|
|
Movement in year |
408 |
(202) |
|||||
|
|
Net debt at beginning of year |
(708) |
(506) |
|||||
|
|
Net debt at end of year |
(300) |
(708) |
|||||
|
14 |
Post-employment obligations |
|
|
|||||||||||||
|
|
|
2009 |
2008 |
|||||||||||||
|
|
Post-employment obligations as at the year end comprise: |
£m |
£m |
|||||||||||||
|
|
Pensions |
- funded |
(597) |
(417) |
||||||||||||
|
|
|
- unfunded |
(345) |
(348) |
||||||||||||
|
|
Medical |
- funded |
(13) |
(18) |
||||||||||||
|
|
|
- unfunded |
(41) |
(51) |
||||||||||||
|
|
|
(996) |
(834) |
|||||||||||||
|
|
|
|
|
|||||||||||||
|
|
The Group's pension arrangements comprise various defined benefit and defined contribution schemes throughout the world. The main externally funded defined benefit pension schemes operate in the UK, US and Japan. In Europe, funds are retained within certain businesses to provide defined benefit pension benefits. In addition, in the US and UK a number of retirement plans are operated which provide certain employees with post-employment medical benefits. |
|||||||||||||||
|
|
|
|||||||||||||||
|
a) |
Defined benefit schemes - measurement and assumptions Independent actuarial valuations of all major defined benefit scheme assets and liabilities were carried out at 31 December 2009. The present value of the defined benefit obligation, the related current service cost and the past service cost were measured using the projected unit credit method.
Key assumptions were: |
|||||||||||||||
|
|
|
UK |
Americas |
Europe |
ROW |
|||||||||||
|
|
|
% |
% |
% |
% |
|||||||||||
|
|
2009 |
|
|
|
|
|||||||||||
|
|
Rate of increase in pensionable salaries |
4.25 |
3.5 |
2.50 |
3.5 |
|||||||||||
|
|
Rate of increase in payment and deferred pensions |
3.40 |
2.0 |
1.75 |
n/a |
|||||||||||
|
|
Discount rate |
5.70 |
6.0 |
5.40 |
2.0 |
|||||||||||
|
|
Inflation assumption |
3.25 |
2.5 |
1.75 |
1.0 |
|||||||||||
|
|
Rate of increases in medical costs: |
|
|
|
|
|||||||||||
|
|
|
initial/long term |
7.0/4.5 |
9.0/5.0 |
n/a |
n/a |
||||||||||
|
|
2008 |
|
|
|
|
|||||||||||
|
|
Rate of increase in pensionable salaries |
3.9 |
3.5 |
2.50 |
3.5 |
|||||||||||
|
|
Rate of increase in payment and deferred pensions |
3.0 |
2.0 |
1.75 |
n/a |
|||||||||||
|
|
Discount rate |
6.5 |
5.8 |
6.00 |
2.0 |
|||||||||||
|
|
Inflation assumption |
2.9 |
2.5 |
1.75 |
1.0 |
|||||||||||
|
|
Rate of increases in medical costs: |
|
|
|
|
|||||||||||
|
|
|
initial/long term |
6.6/4.5 |
9.0/5.0 |
n/a |
n/a |
||||||||||
|
|
|
|||||||||||||||
|
|
The discount rates in the table above for the UK and Europe were referenced against specific iBoxx indices, whilst the Citigroup liability index was the reference point for the USA discount rate. The reference for the UK discount rate was the yield as at 31 December on the iBoxx GBP Corporate rated AA bonds with a maturity of 15 years plus. The reference for the European discount rate was the yield as at 31 December on the iBoxx Euro Corporate rated AA bonds with a maturity of 10 years plus of 5.1%, adjusted to reflect the duration of liabilities. For the USA, the discount rate matched the Citigroup liability index as at 31 December 2009 of 6.0%.
The underlying mortality assumptions for the major schemes are as follows:
|
|||||||||||||||
|
|
United Kingdom Such is the size and profile of the UK scheme that data on the scheme's mortality experience is collected and reviewed annually. The key current year mortality assumptions for the scheme use PA92 (Year of Birth) tables with a plus 2.5 year age adjustment to reflect actual mortality experience for the scheme together with medium cohort projected improvement in longevity. Using these assumptions a male aged 65 lives for a further 19.8 years, whilst a male aged 40 is expected to live a further 21 years after retiring at 65. The prior period valuations used the same mortality assumptions.
|
|||||||||||||||
|
|
Overseas In the USA, CL2009 tables have been used whilst in Germany the RT2005-G tables have again been used. In the USA the longevity assumption for a male aged 65 is that he lives a further 19 years whilst in Germany for a further 18.1 years. The longevity assumption for a USA male currently aged 40 is that he also lives for a further 19 years once attaining 65 years, with the German equivalent assumption being 18.2 years. These assumptions are based solely on the prescribed tables not on actual GKN experience.
|
|||||||||||||||
|
|
Assumption sensitivity analysis The impact of a one percentage point movement in the primary assumptions on the defined benefit net obligations as at 31 December 2009 is set out below:
|
|||||||||||||||
|
|
|
UK |
Americas |
Europe |
ROW |
|||||||||||
|
|
|
Liabilities £m |
Income statement £m |
Liabilities £m |
Income statement £m |
Liabilities £m |
Income statement £m |
Liabilities £m |
Income statement £m |
|||||||
|
|
Discount rate +1% |
341 |
4.2 |
40 |
(0.1) |
43 |
0.2 |
4 |
0.2 |
|||||||
|
|
Discount rate -1% |
(406) |
(1.7) |
(49) |
0.4 |
(54) |
(0.1) |
(4)
|
(0.2) |
|||||||
|
|
Rate of inflation +1% |
(324) |
(24.8) |
- |
- |
(32) |
(2.5) |
- |
- |
|||||||
|
|
Rate of inflation -1% |
292 |
21.7 |
- |
- |
29 |
2.1 |
- |
- |
|||||||
|
|
Rate of increase in medical costs +1% |
(1) |
- |
(1) |
- |
- |
- |
- |
- |
|||||||
|
|
Rate of increase in medical costs -1% |
1 |
- |
1 |
- |
- |
- |
- |
- |
|||||||
|
|
A 1% underpin to Medium Cohort annual improvements in mortality for the UK scheme increases liabilities by £63 million. |
|||||||||||||||
|
14 |
Post-employment obligations (continued) |
||||||||||||||||
|
|
|
||||||||||||||||
|
b) |
Defined benefit schemes - reporting |
||||||||||||||||
|
|
The amounts included in operating profit are: |
||||||||||||||||
|
|
|
Trading Profit |
|
|
|||||||||||||
|
|
|
|
Redundancy |
Restructuring |
|
||||||||||||
|
|
|
Employee |
and other |
and |
|
||||||||||||
|
|
|
benefit |
employment |
impairment |
|
||||||||||||
|
|
|
expense |
amounts |
charges |
Total |
||||||||||||
|
|
|
£m |
£m |
£m |
£m |
||||||||||||
|
|
2009 |
|
|
|
|
||||||||||||
|
|
Current service cost |
(34) |
- |
- |
(34) |
||||||||||||
|
|
Past service cost |
5 |
- |
(1) |
4 |
||||||||||||
|
|
Settlement/curtailments |
7 |
- |
- |
7 |
||||||||||||
|
|
|
(22) |
- |
(1) |
(23) |
||||||||||||
|
|
2008 |
|
|
|
|
||||||||||||
|
|
Current service cost |
(35) |
- |
- |
(35) |
||||||||||||
|
|
Past service cost |
(1) |
(1) |
(1) |
(3) |
||||||||||||
|
|
Settlement/curtailments |
12 |
- |
- |
12 |
||||||||||||
|
|
|
(24) |
(1) |
(1) |
(26) |
||||||||||||
|
|
|
||||||||||||||||
|
|
The 2009 past service credit of £5 million largely relates to changes to life insurance arrangements in the USA, whilst the charge of £1 million relates to augmentations arising in the UK on redundancy programmes. The 2008 past service cost charge relates to augmentations arising in the UK on redundancy programmes and additional charges in respect of a continental European subsidiary. The 2009 settlement/curtailment credit arises from the closure of two pension schemes to future accrual in the USA together with the impact of redundancy programmes in Japan. The 2008 credit in settlements/curtailments was in respect of changes to freeze pension benefit entitlements in Driveline and Powder Metallurgy businesses in the USA. |
||||||||||||||||
|
|
|
||||||||||||||||
|
|
The amounts recognised in the balance sheet are: |
||||||||||||||||
|
|
|
2009 |
|
||||||||||||||
|
|
|
UK |
Americas |
Europe |
ROW |
Total |
2008 |
|
|||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
|||||||||
|
|
Present value of funded obligations |
(2,429) |
(318) |
(20) |
(33) |
(2,800) |
(2,444) |
|
|||||||||
|
|
Fair value of plan assets |
1,930 |
215 |
27 |
18 |
2,190 |
2,009 |
|
|||||||||
|
|
Net obligations recognised in the balance sheet |
(499) |
(103) |
7 |
(15) |
(610) |
(435) |
|
|||||||||
|
|
|
||||||||||||||||
|
|
The contributions expected to be paid by the Group during 2010 to the UK schemes is £60 million and to overseas schemes £33 million. |
||||||||||||||||
|
|
|
||||||||||||||||
|
|
Cumulative actuarial gains and losses recognised in equity are as follows: |
||||||||||||||||
|
|
|
2009 |
2008 |
|
|||||||||||||
|
|
|
£m |
£m |
|
|||||||||||||
|
|
At 1 January |
(144) |
242 |
|
|||||||||||||
|
|
Net actuarial gains/(losses) in year |
(190) |
(386) |
|
|||||||||||||
|
|
At 31 December |
(334) |
(144) |
|
|||||||||||||
|
|
|
|
|
|
|||||||||||||
|
|
|
||||||||||||||||
|
|
Post-employment obligations |
||||||||||||||||
|
|
|
||||||||||||||||
|
|
Movement in schemes' obligations (funded and unfunded) during the year |
||||||||||||||||
|
|
|
UK |
Americas |
Europe |
ROW |
Total |
|||||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
|||||||||||
|
|
At 1 January 2009 |
(2,043) |
(401) |
(353) |
(46) |
(2,843) |
|||||||||||
|
|
Subsidiaries acquired |
(20) |
- |
- |
- |
(20) |
|||||||||||
|
|
Current service cost |
(20) |
(5) |
(6) |
(3) |
(34) |
|||||||||||
|
|
Interest |
|
(129) |
(21) |
(19) |
(1) |
(170) |
||||||||||
|
|
Contributions by participants |
(4) |
- |
- |
- |
(4) |
|||||||||||
|
|
Actuarial gains and losses |
(346) |
5 |
(22) |
1 |
(362) |
|||||||||||
|
|
Benefits paid |
123 |
15 |
17 |
3 |
158 |
|||||||||||
|
|
Past service cost |
(1) |
6 |
(1) |
- |
4 |
|||||||||||
|
|
Curtailments |
- |
6 |
- |
1 |
7 |
|||||||||||
|
|
Currency variations |
- |
40 |
32 |
6 |
78 |
|||||||||||
|
|
At 31 December 2009 |
(2,440) |
(355) |
(352) |
(39) |
(3,186) |
|||||||||||
|
|
At 1 January 2008 |
(2,264) |
(270) |
(268) |
(24) |
(2,826) |
|||||||||||
|
|
Current service cost |
(20) |
(7) |
(5) |
(3) |
(35) |
|||||||||||
|
|
Interest |
|
(131) |
(18) |
(16) |
(1) |
(166) |
||||||||||
|
|
Contributions by participants |
(7) |
- |
- |
- |
(7) |
|||||||||||
|
|
Actuarial gains and losses |
258 |
(22) |
10 |
(2) |
244 |
|||||||||||
|
|
Benefits paid |
123 |
12 |
15 |
2 |
152 |
|||||||||||
|
|
Past service cost |
(2) |
1 |
(2) |
- |
(3) |
|||||||||||
|
|
Curtailments |
- |
12 |
- |
- |
12 |
|||||||||||
|
|
Currency variations |
- |
(109) |
(87) |
(18) |
(214) |
|||||||||||
|
|
At 31 December 2008 |
(2,043) |
(401) |
(353) |
(46) |
(2,843) |
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
14 |
Post-employment obligations (continued) |
|||||||||||||||
|
|
|
|||||||||||||||
|
b) |
Defined benefit schemes - reporting (continued) |
|||||||||||||||
|
|
|
|
|
|
|
|
||||||||||
|
|
Movement in schemes' assets during the year |
|
|
|
|
|
||||||||||
|
|
|
UK |
Americas |
Europe |
ROW |
Total |
||||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
||||||||||
|
|
At 1 January 2009 |
1,759 |
202 |
29 |
19 |
2,009 |
||||||||||
|
|
Subsidiaries acquired |
- |
- |
- |
- |
- |
||||||||||
|
|
Expected return on assets |
106 |
13 |
2 |
- |
121 |
||||||||||
|
|
Actuarial gains and losses |
152 |
21 |
(1) |
- |
172 |
||||||||||
|
|
Contributions by Group |
32 |
15 |
1 |
3 |
51 |
||||||||||
|
|
Contributions by participants |
4 |
- |
- |
- |
4 |
||||||||||
|
|
Benefits paid |
(123) |
(15) |
(1) |
(2) |
(141) |
||||||||||
|
|
Currency variations |
- |
(21) |
(3) |
(2) |
(26) |
||||||||||
|
|
At 31 December 2009 |
1,930 |
215 |
27 |
18 |
2,190 |
||||||||||
|
|
At 1 January 2008 |
2,248 |
212 |
21 |
14 |
2,495 |
||||||||||
|
|
Expected return on assets |
144 |
17 |
1 |
1 |
163 |
||||||||||
|
|
Actuarial gains and losses |
(539) |
(87) |
- |
(4) |
(630) |
||||||||||
|
|
Contributions by Group |
22 |
12 |
1 |
2 |
37 |
||||||||||
|
|
Contributions by participants |
7 |
- |
- |
- |
7 |
||||||||||
|
|
Benefits paid |
(123) |
(11) |
(1) |
(2) |
(137) |
||||||||||
|
|
Currency variations |
- |
59 |
7 |
8 |
74 |
||||||||||
|
|
At 31 December 2008 |
1,759 |
202 |
29 |
19 |
2,009 |
||||||||||
|
|
|
|||||||||||||||
|
|
The defined benefit obligation is analysed between funded and unfunded schemes as follows: |
|||||||||||||||
|
|
|
|||||||||||||||
|
|
|
2009 |
|
|||||||||||||
|
|
|
UK |
Americas |
Europe |
ROW |
Total |
2008 |
|||||||||
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|||||||||
|
|
Funded |
(2,429) |
(318) |
(20) |
(33) |
(2,800) |
(2,444) |
|||||||||
|
|
Unfunded |
(11) |
(37) |
(332) |
(6) |
(386) |
(399) |
|||||||||
|
|
|
(2,440) |
(355) |
(352) |
(39) |
(3,186) |
(2,843) |
|||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
The fair value of the assets in the schemes and the expected rates of return were: |
||||||||||||||
|
|
|
|
UK |
Americas |
Europe |
ROW |
||||||||||
|
|
|
|
Long-term |
|
Long-term |
|
Long-term |
|
Long-term |
|
||||||
|
|
|
|
rate of |
|
rate of |
|
rate of |
|
rate of |
|
||||||
|
|
|
|
return |
|
return |
|
return |
|
return |
|
||||||
|
|
|
|
expected |
Value |
expected |
Value |
expected |
Value |
expected |
Value |
||||||
|
|
|
|
% |
£m |
% |
£m |
% |
£m |
% |
£m |
||||||
|
|
|
At 31 December 2009 |
|
|
|
|
|
|
|
|
||||||
|
|
|
Equities (inc. Hedge Funds) |
7.8 |
696 |
8.5 |
143 |
- |
- |
5.70 |
8 |
||||||
|
|
|
Bonds |
5.3 |
1,054 |
4.2 |
67 |
- |
- |
1.35 |
7 |
||||||
|
|
|
Property |
6.6 |
82 |
- |
- |
- |
- |
- |
- |
||||||
|
|
|
Cash/short-term mandate |
0.5 |
67 |
3.2 |
5 |
- |
- |
- |
2 |
||||||
|
|
|
Other assets |
5.7 |
31 |
- |
- |
5.1 |
27 |
1.25 |
1 |
||||||
|
|
|
|
|
1,930 |
|
215 |
|
27 |
|
18 |
||||||
|
|
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
||||||
|
|
|
Equities (inc. Hedge Funds) |
8.0 |
667 |
8.5 |
125 |
- |
- |
5.6 |
7 |
||||||
|
|
|
Bonds |
5.3 |
912 |
5.5 |
70 |
- |
- |
1.6 |
8 |
||||||
|
|
|
Property |
6.8 |
80 |
- |
- |
- |
- |
- |
- |
||||||
|
|
|
Cash/short-term mandate |
2.0 |
74 |
4.4 |
7 |
- |
- |
1.1 |
2 |
||||||
|
|
|
Other assets |
6.5 |
26 |
- |
- |
5.6 |
29 |
0.9 |
2 |
||||||
|
|
|
|
|
1,759 |
|
202 |
|
29 |
|
19 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
The expected return on plan assets is a blended average of projected long-term returns for the various asset classes. Equity returns are developed based on the selection of the equity risk premium above the risk-free rate which is measured in accordance with the yield on government bonds. Bond returns are selected by reference to the yields on government and corporate debt, as appropriate to the plan's holdings of these instruments, all other asset classes returns are determined by reference to current experience. The actual return on plan assets was £293 million (2008: £467 million negative). |
||||||||||||||
|
|
|
|
||||||||||||||
|
|
15 |
Post balance sheet event |
||||||||||||||
|
|
|
|
||||||||||||||
|
|
|
In February 2010 the Group announced its intention to exit its OffHighway axles operations. In 2009 the axles operations reported a trading loss of £4 million, over 30% of the OffHighway trading loss for the year. All exit options are being explored. The results of this business will be reported and disclosed separately in 2010.
|
||||||||||||||
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